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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-25814
NS&L BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1709446
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 East Main Street, Neosho, Missouri 64850
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 451-0429
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
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par value $0.01 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. X
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The registrant's revenues for the fiscal year ended September 30, 1999 were
$4,807,000.
As of December 15, 1999, there were issued and outstanding 720,626 shares
of the registrant's Common Stock, which are listed on the Nasdaq SmallCap Market
under the symbol "NSLB." Based on the average of the bid and asked prices for
the Common Stock on December 15, 1999, the aggregate value of the Common Stock
outstanding held by nonaffiliates of the registrant was $7,862,030 (720,626
shares at $10.91 per share). For purposes of this calculation, officers and
directors of the registrant are considered nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
September 30, 1999 (Parts I and II)
2. Portions of Proxy Statement for the 2000 Annual Meeting of Stockholders.
(Part III)
Transitional Small Business Disclosure Format (check one) Yes No X
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PART I
Item 1. Description of Business
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General
NS&L Bancorp, Inc. ("NS&L Bancorp" or the "Corporation"), a Missouri
corporation, was organized on February 27, 1995 for the purpose of becoming the
holding company for Neosho Savings and Loan Association, F.A. ("Neosho Savings"
or the "Association") upon Neosho Savings's conversion from a federal mutual to
a federal stock savings and loan association ("Conversion"). The Conversion was
completed on June 7, 1995. At September 30, 1999, the Corporation had total
assets of $69.2 million, total deposits of $51.5 million and stockholders'
equity of $10.7 million. NS&L Bancorp has not engaged in any significant
activity other than holding the stock of Neosho Savings. Accordingly, the
information set forth in this report, including financial statements and related
data, relates primarily to Neosho Savings and its subsidiary.
Neosho Savings, founded in 1884, is a federally chartered stock savings and
loan association, located in Neosho, Missouri. The Association is regulated by
the Office of Thrift Supervision (the "OTS"), its primary federal regulator, and
the Federal Deposit Insurance Corporation (the "FDIC"), the insurer of its
deposits. The Association's deposits are insured by the Savings Association
Insurance Fund (the "SAIF"). The Association has been a member of the Federal
Home Loan Bank (the "FHLB") System since 1956. The Association is a community
oriented financial institution that is engaged primarily in the business of
attracting deposits from the general public and using these funds to originate
one- to four-family residential mortgage loans within the Association's lending
market area. The Association also originates mortgage loans for sale in the
secondary market through its wholly-owned subsidiary, Crawford Mortgage, Inc.
Market Area and Competition
Neosho, Missouri is located in Newton County approximately 20 miles
southeast of Joplin, Missouri in the Southwest corner of Missouri. The
Association focuses primarily on serving customers located in Newton County,
Missouri and, to a lesser extent, on customers in surrounding counties in
southwest Missouri (McDonald, Jasper, Barry and Lawrence counties). According to
the 1990 census, Newton County had a population of approximately 44,500. The
primary industry in Newton County is light manufacturing. Major employers in the
Association's market area include La-Z Boy Midwest, a furniture manufacturer,
Sunbeam Outdoor Products, a manufacturer of outdoor grills and other products,
and Talbot Industries, Inc., a wire processor.
The Association operates in a highly competitive market for the attraction
of savings deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for savings deposits has
historically come from other thrift institutions and from commercial banks
located in its lending market area. As of September 30, 1999, there was one
other thrift institution and six commercial banks in Neosho. Particularly in
times of high interest rates, the Association has faced additional significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. The Association's competition for
loans comes principally from other thrift institutions and commercial banks.
Such competition for deposits and the origination of loans may limit the
Association's growth in the future. In addition, the limited growth of the
Association's market area may restrict the future growth of the Association.
Operating Strategy
The business of the Association consists principally of attracting deposits
from the general public and using such deposits to originate and purchase
mortgage loans secured primarily by one- to four-family residences. The
Association also invests in U.S. Government and agency securities and mortgage-
backed securities. The Association plans to continue to fund its assets with
deposits, although FHLB advances will be utilized when appropriate. The
Association's profitability depends primarily on its net interest income, which
is the difference between the income it
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receives on its loan, investment and mortgage-backed and related securities
portfolios, and its cost of funds, which consists of interest paid on deposits
and FHLB advances. Net interest income is also affected by the relative amounts
of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
The Association's profitability is also affected by the level of other
income and expenses. Other income consists of service charges and fees, gains on
sales of loans and loan late charges. Other expenses consists of compensation
and employee benefits, occupancy expenses, deposit insurance premiums and other
operating costs. The Association's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government legislation and policies concerning monetary
and fiscal affairs, housing and financial institutions and the attendant actions
of the regulatory authorities.
Asset and Liability Management
The Association's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Association has sought to reduce exposure of its earnings to changes in market
interest rates by managing the mismatch between asset and liability maturities
and interest rates. The principal element in achieving this objective is to
increase the interest-rate sensitivity of the Association's assets by
originating loans with interest rates subject to periodic adjustment to market
conditions. Accordingly, when possible, the Association has emphasized the
origination of adjustable-rate mortgage ("ARM") loans for retention in its
portfolio. In addition, the Association maintains an investment portfolio with
laddered maturities in shorter-term securities. The Association relies on retail
deposits as its primary source of funds. Management believes retail deposits,
compared to brokered deposits, reduce the effects of interest rate fluctuations
because they generally represent a more stable source of funds. As part of its
interest rate risk management strategy, the Association promotes transaction
accounts and one- to three-year certificates of deposit.
The Association uses interest rate sensitivity analysis to measure its
interest rate risk by computing changes in net portfolio value ("NPV") of its
cash flows from assets, liabilities and off-balance sheet items in the event of
a range of assumed changes in market interest rates. NPV represents the market
value of portfolio equity and is equal to the market value of assets minus the
market value of liabilities, with adjustments made for off-balance sheet items.
This analysis assesses the risk of loss in market risk sensitive instruments in
the event of a sudden and sustained 100 to 400 basis point increase or decrease
in market interest rates with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Using data compiled
by the OTS, the Association receives a report which measures interest rate risk
by modeling the change in NPV over a variety of interest rate scenarios. This
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and interest-
bearing liabilities that mature or reprice within a specific time period).
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The following table is provided by the OTS and illustrates the change in
NPV at September 30, 1999, based on OTS assumptions, that would occur in the
event of an immediate change in interest rates, with no effect given to any
steps that management might take to counter the effect of that interest rate
movement.
NPV as % of Percent of
Basis Points ("bp") Portfolio Value of Assets
Changes in Rates Net Portfolio Value -------------------------
- ------------------- ------------------------------ NPV
$ Amount $ Change(1) % Change Ratio(2) Change (3)
-------- ----------- -------- -------- ----------
(Dollars in Thousands)
400 $ -- $ -- --% --% --bp
300 7,530 (3,267) (30) 11.65 (393)
200 8,845 (1,952) (18) 13.32 (226)
100 9,857 (940) (9) 14.52 (106)
- 10,797 15.58
(100) 11,349 552 5 16.13 55
(200) 11,196 399 4 15.82 24
(300) 11,170 373 3 15.65 (7)
(400) -- -- -- -- --
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(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Lending Activities
General. The principal lending activity of the Association currently is
the origination of conventional mortgage loans for the purpose of purchasing,
constructing or refinancing owner-occupied, one- to four-family residential
property. To a significantly lesser extent, the Association also originates
commercial real estate, residential construction and consumer loans.
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Loan Portfolio Analysis. The following table sets forth the composition of
the Association's loan portfolio (including loans held for sale) by type of loan
as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
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1999 1998 1997
------------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
of Total of Total of Total
-------- --------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Mortgage loans:
One- to four-dwelling units ....... $34,790 84.75% $33,621 86.49% $31,577 92.41%
Commercial and multi-family ....... 857 2.10 564 1.45 586 1.72
Construction ...................... 1,668 4.06 2,167 5.58 431 1.26
------- ------ ------- ------ ------- ------
Total mortgage loans ............ 37,315 90.91 36,352 93.52 32,594 95.39
------- ------ ------- ------ ------- ------
Consumer and other loans:
Loans on deposit accounts ......... 482 1.17 471 1.21 408 1.19
Home equity ....................... 1,647 4.02 809 2.08 19 0.06
Education ......................... 5 0.01 23 0.06 31 0.09
Automobile ........................ 1,599 3.89 1,206 3.10 1,090 3.19
Other ............................. 2 -- 12 0.03 27 0.08
------- ------ ------- ------ ------- ------
Total consumer and other loans .. 3,735 9.09 2,521 6.48 1,575 4.61
------- ------ ------- ------ ------- ------
Total loans ..................... 41,050 100.00% 38,873 100.00% 34,169 100.00%
------- ====== ------- ====== ------- ======
Less:
Undisbursed loans in process ...... 859 1,299 210
Unearned loan fees ................ (42) 16 36
Allowances for loan losses ........ 63 52 44
------- ------- -------
Total loans receivable, net ..... $40,170 $37,506 $33,879
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</TABLE>
Residential Real Estate Lending. The primary lending activity of the
Association is the origination of mortgage loans to enable borrowers to purchase
existing homes or to construct new one- to four-family homes. Management
believes that this policy of focusing on one- to four-family residential
mortgage loans located in its lending market area has been successful in
contributing to interest income while keeping delinquencies and losses to a
minimum. At September 30, 1999, $36.5 million, or 88.8% of the Association's
total loan portfolio, consisted of loans secured by one- to four-family
residential real estate. Included in these loans are home equity loans. The
Association presently originates for retention in its portfolio both fixed-rate
mortgage loans and ARM loans secured by one- to four-family properties with
terms of 15 to 30 years. Borrower demand for ARM loans versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that can be originated at any time is
largely determined by the demand for each in a competitive environment. At
September 30, 1999, $28.2 million, or 77.3%, of the Association's one- to four-
family residential mortgage loans were subject to periodic interest rate
adjustments and $8.3 million, or 22.7%, were fixed-rate loans.
The loan fees charged, interest rates and other provisions of the
Association's ARM loans are determined by the Association on the basis of its
own pricing criteria and competitive market conditions. Since July 1994, the
Association has originated ARM loans whose interest rates and payments generally
are adjusted annually to a rate typically equal to 2.25% above the one year
constant maturity U.S. Treasury index. The Association previously originated ARM
loans whose rates are based on the Eighth District Cost of Funds Index. The
Association currently offers ARM loans with initial rates below those which
would prevail under the foregoing computations, determined by the Association
based on market factors and competitive rates for loans having similar features
offered by other lenders for such initial periods. The periodic interest rate
cap (the maximum amount by which the interest rate may be increased or decreased
in a given period) on the Association's ARM loans is generally 2% per adjustment
period and the lifetime interest rate cap is generally 5.75% over the initial
interest rate of the loan. The Association does not originate negative
amortization loans. The terms and conditions of the ARM loans offered by the
Association, including the index for
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interest rates, may vary from time to time. The Association believes that the
annual adjustment feature of its ARM loans also provides flexibility to meet
competitive conditions as to initial rate concessions while preserving the
Association's return on equity objectives by limiting the duration of the
initial rate concession.
The retention of ARM loans in the Association's loan portfolio helps reduce
the Association's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of rising interest rates, the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. The Association
qualifies the borrower based on the borrower's ability to repay the ARM loan
assuming the fully indexed accrual rate on the loan remains constant during the
loan term. As a result, the potential for delinquencies and defaults on ARM
loans is lessened. Furthermore, because the ARM loans originated by the
Association generally provide, as a marketing incentive, for initial rates of
interest below the rates which would apply were the adjustment index used for
pricing initially (discounting), these loans are subject to increased risks of
default or delinquency. Another consideration is that although ARM loans allow
the Association to increase the sensitivity of its asset base to changes in the
interest rates, the extent of this interest sensitivity is limited by the
periodic and lifetime interest rate adjustment limits. Because of these
considerations, the Association has no assurance that yields on ARM loans will
be sufficient to offset increases in the Association's cost of funds.
As discussed above, the Association also originates conventional fixed-rate
mortgage loans on one- to four-family residential properties. All fixed-rate
products are underwritten according to Freddie Mac standards so as to qualify
for sale in the secondary mortgage market, though until recently it has been the
Association's policy to retain its fixed-rate mortgage loans in its loan
portfolio. The Association's decision to hold or sell these loans is based on
its asset/liability management policies and goals and the market conditions for
mortgages at any period in time.
While fixed-rate single-family residential real estate loans are normally
originated with 15 or 20 year terms, and the Association permits its ARM loans
to be assumed by qualified borrowers, such loans typically remain outstanding
for substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the
Association's loan portfolio contain due-on-sale clauses providing that the
Association may declare the unpaid amount due and payable upon the sale of the
property securing the loan. The Association enforces these due-on-sale clauses
to the extent permitted by law and as business judgment dictates. Thus, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.
The Association makes both fixed-rate and adjustable-rate home equity
loans. These loans are secured by a first or second mortgage on residential
property. Fixed-rate home equity loans have a term of 24 or 36 months while
adjustable-rate home equity loans have a term of 36 to 60 months.
The Association generally requires title insurance insuring the status of
its lien on all of the real estate secured loans, though in some instances it
will accept an abstract of title accompanied by an attorney's opinion. The
Association also requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the outstanding loan balance.
The Association's lending policies generally limit the maximum loan-to-
value ratio on mortgage loans secured by owner-occupied properties to 95% of the
lesser of the appraised value or the purchase price, with the condition that
private mortgage insurance is required on loans with loan-to-value ratios
greater than 80%. The Association has established a program for first-time home
buyers under which it will make loans with a loan-to-value ratio up to 89.9%.
Construction Lending. The Association currently originates residential
construction loans to individuals to construct their own homes and, to a much
lesser extent, to local builders. The Association's construction loans to
individuals are made in connection with the granting of permanent financing on
the property and require monthly payments of interest only during their term.
Residential construction loans convert to an adjustable-rate loan at the
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earlier of the completion of construction or one year. Draws are generally made
to the borrower after he has provided the Association with billings showing the
costs and work completed and following an inspection by the Association.
Construction lending is generally considered to involve a higher level of
risk as compared to one- to four-family residential lending because of the
inherent difficulty in estimating both a property's value at completion of the
project and the estimated cost of the project. The nature of these loans is such
that they are generally more difficult to evaluate and monitor. If the estimate
of construction cost proves to be inaccurate, the Association may be required to
advance funds beyond the amount originally committed to permit completion of the
project. If the estimate of value proves to be inaccurate, the Association may
be confronted at, or prior to the maturity of the loan, with a project whose
value is insufficient to assure full repayment. Speculative loans, i.e., loans
to builders to construct homes for which no purchaser has been identified, carry
more risk because the payoff for the loan is dependent on the builder's ability
to sell the property prior to the time that the construction loan is due.
Commercial and Multi-family Real Estate Loans. The Association has
historically engaged in a limited amount of commercial and multi-family real
estate lending. The Association does not actively solicit or originate
commercial or multi-family real estate loans. Loans secured by commercial or
multi-family real estate generally are larger and involve greater risks than
one- to four-family residential mortgage loans. Payments on loans secured by
such properties are often dependent on successful operation or management of the
properties. Repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. The Association
seeks to minimize these risks in a variety of ways, including limiting the size
of such loans and strictly scrutinizing the financial condition of the borrower,
the quality of the collateral and the management of the property securing the
loan. The Association also obtains loan guarantees from financially capable
parties. Substantially all of the properties securing the Association's
commercial and multi-family real estate loans are inspected by the Association's
lending personnel before the loan is made. The Association also obtains
appraisals on each property in accordance with applicable regulations.
Consumer and Other Loans. Consumer lending has traditionally been a small
part of the Association's business. Consumer loans generally have shorter-terms
to maturity or repricing and higher interest rates than mortgage loans. The
Association's consumer and other loans consist primarily of automobile loans,
home equity loans and savings account loans.
Automobile loans are secured by both new and used cars. Automobile loans
are only made to the borrower-owners on a direct basis. New cars are financed
for a period of up to 54 months while used cars are financed for 42 months or
less depending on the age of the car. Collision and comprehensive insurance
coverage is required on all automobile loans and the Association holds the
certificate of title to the car securing the loan.
The Association makes equity line of credit ("ELOC") loans for a period of
12 years, with the first two years being the draw years and the next 10 years
being the repayment years. ELOC loans can be made for up to 95% of the appraised
value of the property securing the loan.
The Association may make savings account loans with the account pledged as
collateral to secure the loan. Savings account loans are payable in monthly
payments of principal and interest or in a single payment.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against
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an assignee of such loans such as the Association, and a borrower may be able to
assert against such assignee claims and defenses that it has against the seller
of the underlying collateral. At September 30, 1999, the Association had no
delinquencies in its consumer loan portfolio.
Loan Maturity and Repricing
The following table sets forth certain information at September 30, 1999
regarding the dollar amount of loans maturing in the Association's portfolio
based on their contractual terms to maturity, but does not include scheduled
payments or potential prepayments. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Loan balances are before deductions for undisbursed loan proceeds,
unearned discounts, unearned income and allowance for loan losses. Amounts
include loans held for sale.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -----
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family dwelling
units ...................... $ 608 $ 356 $ 758 $5,641 $27,427 $34,790
Commercial and multi-family
real estate ................ -- 70 -- 36 751 857
Construction .................. 723 -- -- -- 945 1,668
------ ------ ------ ------ ------- -------
Total mortgage loans ......... 1,331 426 758 5,677 29,123 37,315
Consumer and other loans ....... 678 736 642 32 1,647 3,735
------ ------ ------ ------ ------- -------
Total loans .................. $2,009 $1,162 $1,400 $5,709 $30,770 $41,050
====== ====== ====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due one year
after September 30, 1999, which have fixed interest rates and have floating or
adjustable interest rates.
Floating- or
Fixed- Adjustable-
Rate Rates
--------- -------------
(Dollars in Thousands)
Mortgage loans:
One- to four-family dwelling
units ...................... $6,854 $27,328
Commercial and multi-family
real estate ................ 371 486
Construction .................. 185 760
------ -------
Total mortgage loans ......... 7,410 28,574
Consumer and other loans ....... 1,410 1,647
------ -------
Total loans ................. $8,820 $30,221
====== =======
Scheduled contractual principal repayments of loans and mortgage-backed
securities do not reflect the actual life of such assets. The average life of
loans and mortgage-backed securities is substantially less than their
contractual terms because of prepayments. In addition, due-on-sale clauses on
loans generally give the Association the right to declare loans immediately due
and payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
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Loan Solicitation and Processing. Loan applicants come through referrals by
realtors and previous and present customers and through advertising promotions.
Upon receipt of a loan application from a prospective borrower, a credit report
and other data are obtained to verify specific information relating to the loan
applicant's employment, income and credit standing. An appraisal of the real
estate offered as collateral generally is undertaken by a fee appraiser approved
by the Association and, when required, licensed or certified by the State of
Missouri.
Loans in the amount of $75,000 or less may be approved by any one member of
the Association's Loan Committee, which consists of the Association's President
and two directors. Loans of $75,000 to $100,000 must be approved by any one
member of the Loan Committee and reviewed by another member. Loans in excess of
$100,000 must be approved by two members of the Loan Committee and reviewed by
the Association's Board of Directors.
Mortgage loans are generally approved or denied within ten days and closed
within 21 days. Interest rates are subject to change if the approved loan is not
closed within the time of the commitment, which usually is 30 days.
Loan Originations, Sales and Purchases. During the year ended September 30,
1999, the Association's total gross mortgage loan originations were $14.7
million. While the Association originates both adjustable-rate and fixed-rate
loans, its ability to generate loans is dependent upon relative customer demand
for loans in its market.
Consistent with its asset/liability management strategy, the Association's
policy had been to retain in its portfolio all of the one- to four-family loans
that it originates. In August 1997, the Association acquired Crawford Mortgage,
Inc., a mortgage broker based in Joplin, Missouri. Through Crawford Mortgage,
the Association originates loans to sell in the secondary market. During the
year ended September 30, 1999 the Association sold $5.8 million of loans.
The Association occasionally purchases loans to supplement its
originations. The Association purchased loans in the year ended September 30,
1997 with a cash advance from the FHLB. No loans were purchased during the years
ended September 30, 1998 and 1999.
The following table shows total mortgage loans originated, purchased, sold
and repaid during the periods indicated.
Years Ended September 30,
-------------------------
1999 1998 1997
======= ======= =======
(In Thousands)
Total mortgage loans at beginning of period ...$36,352 $32,594 $30,188
Mortgage loans originated:
One- to four-family dwelling units(1) ........ 14,714 10,920 3,393
Commercial and multi-family real estate ..... -- 360 592
------- ------- -------
Total mortgage loans originated ............. 14,714 11,280 3,985
Mortgage loans purchased ...................... -- -- 1,015
Mortgage loans sold ........................... 5,765 877 --
Mortgage loan principal repayments ............ 7,986 6,645 2,594
Loans transferred to other real estate ........ -- -- --
------- ------- -------
Net loan activity ............................. 963 3,758 2,406
------- ------- -------
Total gross mortgage loans at end of period ...$37,315 $36,352 $32,594
======= ======= =======
- ------------------------
(1) Includes construction loans originated during the period.
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Loan Commitments. The Association issues commitments for fixed- and
adjustable-rate one- to four-family residential mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 30 days from the date
of loan approval. The Association had outstanding net loan commitments of
approximately $1.5 million at September 30, 1999. See Note 16 of Notes to
Consolidated Financial Statements contained in the Annual Report.
Loan Origination and Other Fees. The Association, in most instances,
receives loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by the Association
varies, though the range generally is between zero and two points. Current
accounting standards require fees received (net of certain loan origination
costs) for originating loans to be deferred and amortized into interest income
over the contractual life of the loan. Net deferred fees associated with loans
that are prepaid are recognized as income at the time of prepayment. The
Association had $(42,000) of net deferred mortgage loan fees at September 30,
1999.
Non-performing Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment when due, the Association institutes collection
procedures. The first notice is mailed to the borrower at the end of the month
in which the payment is due and, if necessary, a second written notice follows
within 30 days thereafter. Attempts to contact the borrower by telephone
generally begin soon after the first notice is mailed to the borrower. If a
satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. Before the ninetieth day of
delinquency, attempts to interview the borrower, preferably in person, are made
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st
day of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued and
uncollected interest.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Association institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. If payment is not promptly received, a second notice is mailed
to the borrower 20 days following the payment due date and the customer is
contacted by telephone to ascertain the nature of the delinquency. If the
delinquency remains uncured, the Association mails an additional notice to the
borrower on the thirtieth day of delinquency and every 30 days thereafter and
continues to contact the borrower by telephone.
In most cases, delinquencies are cured promptly; however, if, by the
ninety-first day of delinquency the delinquency has not been cured, the
Association begins action to either obtain a judgment in small claims court or
to repossess the collateral.
The Association's Board of Directors is informed on a monthly basis as to
the status of all mortgage and consumer loans that are delinquent more than 30
days, the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Association.
9
<PAGE>
The following table sets forth information with respect to the
Association's non-performing assets and restructured loans within the meaning of
Statement of Financial Accounting Standards ("SFAS") No. 15 at the dates
indicated. Any loan four or more payments past due is placed on nonaccrual
status.
At September 30,
----------------------------------------
1999 1998 1997 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a nonaccrual
basis:
Real estate:
Residential ........................ $ 37 $ 21 $ 9 $ 3 $ 49
Commercial and multi-family ........ -- -- -- -- --
Consumer and other ................... -- -- 11 -- --
----- ----- ----- ----- -----
Total ............................. 37 21 20 3 49
----- ----- ----- ----- -----
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential ........................ 218 45 66 19 40
Commercial and multi-family ........ -- -- -- -- --
Consumer and other ................... -- -- -- -- --
----- ----- ----- ----- -----
Total ............................. 218 45 66 19 40
----- ----- ----- ----- -----
Total of nonaccrual and 90 days
past due loans ..................... 255 66 86 22 89
Real estate owned(1) .................. -- -- -- -- --
----- ----- ----- ----- -----
Total non-performing assets ....... $ 255 $ 66 $ 86 $ 22 $ 89
===== ===== ===== ===== =====
Restructured loans .................... -- -- -- -- --
===== ===== ===== ===== =====
Total loans delinquent 90 days or
more to net loans .......... 0.64% 0.18% 0.25% 0.07% 0.34%
===== ===== ===== ===== =====
Total loans delinquent 90 days or
more to consolidated total
assets .................. 0.37% 0.09% 0.14% 0.04% 0.15%
===== ===== ===== ===== =====
Total non-performing assets to
consolidated total assets .. 0.37% 0.09% 0.14% 0.04% 0.15%
===== ===== ===== ===== =====
___________________________________
(1) Represents the book value of property acquired through foreclosure, net of
valuation reserves.
Interest income that would have been recorded for the year ended September
30, 1999 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $1,330. The amount of interest included in
interest income on such loans for the year ended September 30, 1999 amounted to
approximately $0.
Real Estate Owned. Real estate acquired by the Association as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold. When property is acquired it is recorded at the lower
of its cost, which is the unpaid principal balance of the related loan plus
foreclosure costs, or fair market value. Subsequent to foreclosure, the property
is carried at the lower of the foreclosed amount or fair value. Upon receipt of
a new
10
<PAGE>
appraisal and market analysis, the carrying value is written down through the
establishment of a specific reserve to its fair value. At September 30, 1999,
the Association had no REO.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
"substandard," "doubtful" and "loss." Substandard assets must have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. If an asset or portion thereof is
classified loss, the insured institution establishes specific allowances for
loan losses for the full amount of the portion of the asset classified loss. A
portion of general loan loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "special mention." Not all of the
Association's non-performing assets are classified as problem assets. In
determining whether the Association's non-performing assets expose the
Association to sufficient risk to warrant classification, the Association may
consider various factors, including the borrower's payment history, the
existence of private mortgage insurance, and the loan-to-value ratio. Upon
consideration of these factors, the Association may determine that the asset in
question does not present a risk of loss that requires it to be classified.
The following table sets forth the number and amount of classified loans at
September 30, 1999.
<TABLE>
<CAPTION>
Loss Doubtful Substandard
------------------ ----------------- -----------------
Number Number Number
of Principal of Principal of Principal
Loans Amount Loans Amount Loans Amount
------- --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans: -- -- -- -- 3 $185
One- to four-family ........... -- -- -- -- -- --
Commercial and multi-family ... -- -- -- -- -- --
Real estate ................... -- -- -- -- -- --
Construction .................. -- -- -- -- -- --
Consumer and other loans ......... -- -- -- -- -- --
</TABLE>
Allowance for Loan Losses. The Association has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Association recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Association increases its allowance
for loan losses by charging provisions for possible loan losses against the
Association's income.
The general valuation allowance is maintained to cover losses inherent in
the portfolio of performing loans. Management reviews the adequacy of the
allowance at least quarterly based on the Association's past loan loss
experiences, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
11
<PAGE>
Specific valuation allowances are established to absorb losses on loans for
which full collectibility may not be reasonably assured. The amount of the
allowance is based on the estimated value of the collateral securing the loan
and other analyses pertinent to each situation.
Generally, a provision for losses is charged against income on a quarterly
basis to maintain the allowances. A provision of $12,000 was charged against
income for the year ended September 30, 1999. At September 30, 1999, the
Association had an allowance for loan losses of $63,000. Management believes
that the amount maintained in the allowances will be adequate to absorb losses
inherent in the portfolio.
Although management believes that it uses the best information available to
make such determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Association believes it has established its existing allowance
for loan losses in accordance with generally accepted accounting principles,
there can be no assurance that regulators, in reviewing the Association's loan
portfolio, will not request the Association to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Association's financial
condition and results of operations.
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated. Where specific loan loss reserves
have been established, any differences between the loss reserve and the amount
of loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------------
1999 1998 1997 1995 1994
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period........ $ 52 $ 44 $ 41 $ 38 $ 31
Provision for loan losses............... 12 8 3 3 7
Recoveries.............................. -- -- -- -- --
Charge-offs............................. (1) -- -- -- --
----- ----- ----- ----- -----
Net charge-offs......................... (1) -- -- -- --
----- ----- ----- ----- -----
Balance at end of period................ $ 63 $ 52 $ 44 $ 41 $ 38
===== ===== ===== ===== =====
Ratio of allowance to total loans....... 0.15% 0.14% 0.13% 0.13% 0.15%
Ratio of net charge-offs to average
loans outstanding during the period.... -- -- -- -- --
</TABLE>
12
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------
1999 1998 1997
-------------------- ---------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
----- ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family dwelling
units............................ $45 83.53% $41 86.49% $34 92.56%
Commercial and multi-family....... -- 2.10 -- 1.45 -- 1.72
Construction...................... -- 5.28 -- 5.58 -- 1.01
Consumer and other loans........... 18 9.09 11 6.48 10 4.71
--- ------ --- ------ --- ------
Total allowance for loan losses.. $63 100.00% $52 100.00% $44 100.00%
=== ====== === ====== === ======
</TABLE>
Investment Activities
The Association is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
the Association may also invest a portion of its assets in commercial paper,
corporate debt securities and ARM funds, the assets of which conform to the
investments that the Association is authorized to make directly. Savings
institutions like the Association are also required to maintain an investment in
FHLB stock and a minimum level of liquid assets which vary from time to time.
See "Regulation and Supervision -- Federal Home Loan Bank System." The
Association may decide to increase its liquidity above the required levels
depending upon the availability of funds and comparative yields on investments
in relation to return on loans.
The Association is required under federal regulations to maintain a minimum
amount of liquid assets and is also permitted to make certain other securities
investments. See "Regulation and Supervision" contained herein, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" contained in the Annual Report.
At September 30, 1999, the Association's regulatory liquidity was 35.6% which is
significantly in excess of the 4.0% required by OTS regulations. It is the
intention of management to hold all securities in the Association's investment
portfolio in order to enable the Association to provide liquidity for loan
funding upon maturity of such investment securities and to match more closely
the interest-rate sensitivities of its assets and liabilities.
The Association's President determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures. Investments are made following certain considerations, which include
the Association's liquidity position and anticipated cash needs and sources
(which in turn include outstanding commitments, upcoming maturities, estimated
deposits and anticipated loan amortization and repayments). Further, the effect
that the proposed investment would have on the Association's credit and interest
rate risk, and risk-based capital is given consideration during the evaluation.
The interest rate, yield, settlement date and maturity are also reviewed.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. Debt securities may be classified as
"held to maturity" and reported in financial statements at amortized cost only
if the reporting entity has the positive intent and ability to hold those
securities to maturity. Securities that might be sold in response to changes in
market interest rates,
13
<PAGE>
changes in the security's prepayment risk, increases in loan demand, or other
similar factors cannot be classified as "held to maturity." Debt and equity
securities held for current resale are classified as "trading securities." Such
securities are reported at fair value, and unrealized gains and losses on such
securities would be included in earnings. Debt and equity securities not
classified as either "held to maturity" or "trading securities" are classified
as "available for sale." Such securities are reported at fair value, and
unrealized gains and losses on such securities are excluded from earnings and
reported as a net amount in a separate component of equity.
The Association purchases mortgage-backed securities in the form of Ginnie
Mae, Freddie Mac and Fannie Mae participation certificates in order to
supplement loan production. Ginnie Mae and Fannie Mae certificates are
guaranteed as to principal and interest by the full faith and credit of the
United States, while Freddie Mac certificates are guaranteed by Freddie Mac.
Mortgage-backed securities generally entitle the Association to receive a pro
rata portion of the cash flows from an identified pool of mortgages. The cash
flows from such pools are segmented and paid in accordance with a predetermined
priority to various classes of securities issued by the entity. See Note 5 of
Notes to Consolidated Financial Statements contained in the Annual Report.
The following table sets forth the composition of Association's mortgage-
backed securities portfolio at carrying value at the dates indicated. All of
the Association's mortgage-backed securities are classified as held to maturity.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Book Percent of Book Percent of Book Percent of
Value Portfolio Value Portfolio Value Portfolio
--------- ------------- --------- ------------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
GNMA:
Fixed................................. $ 26 1.05% $ 40 1.28% $ 56 1.25%
Adjustable............................ 809 32.57 690 22.11 993 22.20
FHLMC:
Fixed................................. 521 20.97 712 22.81 1,152 25.76
Adjustable............................ -- -- -- -- -- --
FNMA:
Fixed................................. 116 4.67 264 8.46 413 9.23
Adjustable............................ 1,051 42.31 1,475 47.26 1,945 43.48
Unamortized premium (discount), net..... (39) (1.57) (60) (1.92) (86) (1.92)
------ ------ ------ ------ ------ ------
Total mortgage-backed securities..... $2,484 100.00% $3,121 100.00% $4,473 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
At September 30, 1999, the Corporation's investment securities portfolio
totalled approximately $20.03 million at carrying value and consisted
principally of U.S. Treasury and agency securities and municipal bonds. The
Corporation's municipal bond portfolio, which totalled $1.05 million at fair
value ($1.06 million at amortized cost) at September 30, 1999, was comprised
primarily of obligations of political subdivisions of the State of Missouri that
have maturities ranging from less than one year to five to 10 years.
14
<PAGE>
The following table sets forth the composition of the Corporation's
investment securities portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- ---------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Debt securities:
U.S. Government treasury and
obligations of U.S.
Government agencies................ $18,970 92.19% $8,482 85.07% $12,218 88.92%
State and political subdivision....... 1,059 5.15 919 9.22 834 6.07
------- ------ ------ ------ ------- ------
Total debt securities................ 20,029 97.34 9,401 94.29 13,052 94.99
------- ------ ------ ------ ------- ------
Equity securities:
FHLB stock............................ 365 1.77 365 3.66 421 3.07
Common stock.......................... 183 0.89 204 2.05 267 1.94
------- ------ ------ ------ ------- ------
Total equity securities.............. 548 2.66 569 5.71 688 5.01
------- ------ ------ ------ ------- ------
Total.............................. $20,577 100.00% $9,970 100.00% $13,740 100.00%
======= ====== ====== ====== ======= ======
</TABLE>
The following table sets forth the maturities and weighted average yields
of the debt securities in the Corporation's investment securities portfolio at
September 30, 1999.
<TABLE>
<CAPTION>
Less Than One to Over Five to Over
One Year Five Years Ten Years Ten Years
----------------- --------------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
--------- ------- -------- ------ --------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government treasury and
obligations of U.S.
Government agencies............ $250 3.31 $4,749 6.03% $13,221 6.62% $ 750 7.05%
State and political subdivision... -- -- 275 5.62 404 4.55 380 5.30
---- ------ ------- ------
Total............................ $250 $5,024 $13,625 $1,130
==== ====== ======= ======
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Association's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources. Presently, the Association has no other borrowing
arrangements.
Deposit Accounts. Substantially all of the Association's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Association's lending market area through the offering of a broad selection of
deposit instruments, including NOW accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of its deposit accounts, the Association
considers current market interest rates, profitability to the Association,
matching
15
<PAGE>
deposit and loan products and its customer preferences and concerns. The
Association generally reviews its deposit mix and pricing twice weekly.
The following table indicates the amount of the Association's jumbo
certificates of deposit by time remaining until maturity as of September 30,
1999. Jumbo certificates of deposit represent minimum deposits of $100,000.
Maturity Period Amounts
- --------------- -------------
(In Thousands)
Three months or less.................. $ 442
Over three through six months......... 100
Over six through twelve months........ 1,901
Over twelve months.................... 644
------
Total.............................. $3,087
======
The following table sets forth the balances (inclusive of interest
credited) of deposits in the various types of accounts offered by the
Association at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ --------------------------------- -------------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------- ------- ------------ -------- --------- ------------ -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing......... $ 962 1.87% $ 383 $ 579 1.21% $ 181 $ 398 0.91%
Demand and NOW checking..... 8,841 17.15 1,505 7,336 15.30 1,386 5,950 13.56
Passbook savings accounts... 5,669 11.00 (49) 5,718 11.93 (14) 5,732 13.06
Money market deposit........ 2,853 5.53 269 2,584 5.39 (504) 3,088 7.03
Fixed-rate certificates
which mature:
Within one year............ 23,703 45.98 894 22,809 47.57 1,201 21,608 49.23
After one year, but........ 9,341 18.12 906 8,435 17.59 2,005 6,430 14.65
within three years
After three years.......... 178 0.35 (305) 483 1.01 (203) 686 1.56
------- ------ ------ ------- ------ ------ ------- ------
Total.................... $51,547 100.00% $3,603 $47,944 100.00% $4,052 $43,892 100.00%
======= ====== ====== ======= ====== ====== ======= ======
</TABLE>
The following table sets forth the time deposits in the Association
classified by rates as of the dates indicated.
At September 30,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in Thousands)
3.00 - 3.99%........................... $ 2,179 $ -- $ --
4.00 - 4.99%........................... 15,782 4,568 5,020
5.00 - 5.99%........................... 15,050 26,230 21,844
6.00 - 6.99%........................... 211 929 1,860
------- ------- -------
Total............................... $33,222 $31,727 $28,724
======= ======= =======
16
<PAGE>
The following table sets forth the amount and maturities of time
deposits at September 30, 1999.
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------
Percent
of Total
Less Than 1 - 2 2 - 3 3 - 4 After Certificate
One Year Years Years Years 4 Years Total Accounts
----------- -------- ------- ------- ------- -------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%..... $1,474 $ 705 $ -- $ -- $ -- $ 2,179 6.56%
4.00 - 4.99%..... 2,419 10,943 1,976 312 132 15,782 47.50
5.00 - 5.99%..... 3,655 6,647 4,428 307 13 15,050 45.30
6.00 - 6.99%..... 106 -- 105 -- -- 211 0. 64
------ ------- ------ ------ ---- ------- ------
Total..... $7,654 $18,295 $6,509 $ 619 $145 $33,222 100.00%
====== ======= ====== ====== ==== ======= ======
</TABLE>
The following table sets forth the deposit activities of the Association for
the periods indicated.
Years Ended September 30,
--------------------------------
1999 1998 1997
------- ------- -------
(Dollars in Thousands)
Beginning balance.................... $47,944 $43,892 $48,444
------- ------- -------
Net increase (decrease) before
interest credited................. 2,392 2,437 (5,959)
Interest credited.................... 1,211 1,615 1,407
------- ------- -------
Net increase (decrease) in deposits.. 3,603 4,052 (4,552)
------- ------- -------
Ending balance....................... $51,547 $47,944 $43,892
======= ======= =======
Borrowings. Savings deposits are the primary source of funds for the
Association's lending and investment activities and for its general business
purposes. The Association has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member of the FHLB-Des Moines, the Association is required to
own capital stock in the FHLB-Des Moines and is authorized to apply for advances
on the security of such stock and certain of its mortgage loans and other assets
(principally securities which are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit.
17
<PAGE>
The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.
Years Ended September 30,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in Thousands)
Maximum balance at any month end... $5,856 $3,986 $3,000
Average balance.................... 4,166 1,581 2,917
Year end balance................... 5,856 3,986 3,000
Weighted average interest rate:
At end of year................... 4.64% 5.81% 5.60%
During the year.................. 5.52 5.95 5.63
Subsidiary Activities
In August 1997, the Association acquired Crawford Mortgage, Inc., which is
engaged in the business of mortgage brokerage.
Federal associations generally may invest up to 3% of their assets in
service corporations, provided that at least one-half of any amount in excess of
1% is used primarily for community, inner-city and community development
projects. The Association's investment in its service corporation at September
30, 1999 did not exceed the limits applicable to federal associations. NS&L
Enterprises, Inc. is a wholly owned subsidiary of the Association. NS&L
Enterprises was established in 1992 for the purpose of offering credit life
insurance and discount brokerage services. At September 30, 1999, the
Association's investment in NS&L Enterprises was $6,000.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Corporation is required by
federal law to file reports with, and otherwise comply with, the rules and
regulations of the OTS. The Association is subject to extensive regulation,
examination and supervision by the OTS, as its primary federal regulator, and
the FDIC, as the deposit insurer. The Association is a member of the FHLB and
its deposit accounts are insured up to applicable limits by the SAIF managed by
the FDIC. The Association must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Association's safety and soundness and
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Corporation, the Association and their operations. Certain
of the regulatory requirements applicable to the Association and to the
Corporation are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings institutions and
their holding companies set forth in this report does not purport to be a
complete description of such statutes and regulations and their effects on the
Corporation and the Association.
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<PAGE>
Holding Company Regulation
The Corporation is a nondiversified unitary savings and loan holding
company within the meaning of federal law. As a unitary savings and loan holding
company, the Corporation generally is not restricted under existing laws as to
the types of business activities in which it may engage, provided that the
Association continues to be a qualified thrift lender. See "--Federal Savings
Institution Regulation -- QTL Test." Upon any non-supervisory acquisition by the
Corporation of another savings institution or savings bank that meets the
qualified thrift lender test and is deemed to be a savings institution by the
OTS, the Corporation would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would
generally be limited to activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval
of the OTS, and certain activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC. In evaluating applications by holding companies
to acquire savings institutions, the OTS considers the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the deposit insurance funds, the
convenience and needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. The Association must
notify the OTS 30 days before declaring any dividend to the Corporation. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets. In
addition, certain activities, such as mergers and acquisitions, and branching
are subject to the prior approval of the OTS.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage ratio and an 8% risk-based capital ratio. Effective April
1, 1999, however, the minimum core capital ratio increased to 4% for all
institutions except those with the highest ratings on the CAMELS financial
institution rating system. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS financial institution rating system), and, together with the risk-
based capital standard itself, a 4% Tier I risk-based capital standard. The OTS
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed
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<PAGE>
inherent in the type of asset. Core (Tier I) capital is defined as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair values. Overall, the amount of supplementary capital included
as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk component. At September 30, 1999, the Association met
each of its capital requirements.
The following table presents the Association's capital position at
September 30, 1999.
Capital
Excess --------------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
-------- -------- ------------ ------- ----------
(Dollars in Thousands)
Tangible $9,156 $1,031 $8,125 13.3% 1.5%
Core (Leverage) 9,156 2,749 6,407 13.3 4
Risk-based 9,219 2,467 6,752 29.9 8
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company in an amount of
up to the lesser of 5% of the institution's assets or the amount which would
bring the institution into compliance with all capital standards. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Association are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon the
categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
20
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In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1998,
FICO payments for SAIF members, including the Association, approximated 6.10
basis points, while Bank Insurance Fund ("BIF") members paid 1.22 basis points.
By law, there will be equal sharing of FICO payments between SAIF and BIF
members beginning on January 1, 2000. The FDIC has authority to increase
insurance assessments. A significant increase in SAIF insurance premiums would
likely have an adverse effect on the operating expenses and results of
operations of the Association. Management cannot predict what insurance
assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Association does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At September
30, 1999, the Association's limit on loans to one borrower was $1.5 million, and
the Association's largest aggregate outstanding balance of loans to one borrower
was $939,000.
QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code of 1986, as amended (the "Code"), or maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) in at least nine months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of September 30, 1999, the Association met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. The rule effective in 1998 established
three tiers of institutions based primarily on an institution's capital level.
An institution that exceeded all capital requirements before and after a
proposed capital distribution ("Tier I Bank") and had not been advised by the
OTS that it was in need of more than normal supervision, could, after prior
notice but without obtaining approval of the OTS, make capital distributions
during the calendar year equal to the greater of (i) 100% of its net earnings to
date during the calendar year plus the amount that would reduce by one-half the
excess capital over its capital requirements at the beginning of the calendar
year or (ii) 75% of its net income for the previous four quarters. Any
additional capital distributions required prior regulatory approval. At
September 30, 1999, the Association was a Tier I Bank. Effective April 1, 1999,
the OTS's capital distribution regulation changed. Under the new regulation, an
application to and the prior approval of the OTS will be required prior to any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under OTS regulations (i.e., generally,
safety and soundness, compliance and Community Reinvestment Act examination
ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with OTS. If an application is not required,
the institution must still provide prior notice to OTS of the capital
distribution. In the event the Association's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Association's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
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<PAGE>
Liquidity. The Association is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any amount within the range of 4% to 10%. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Association's has never been subject to monetary penalties for failure to meet
its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a semi-
annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Association's latest
quarterly thrift financial report.
Transactions with Related Parties. The Association's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Coroporation and its non-
savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. An exception exists for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. The law limits both the individual and aggregate
amount of loans the Association may make to insiders based, in part, on the
Association's capital position and requires certain board approval procedures to
be followed. Special limitations apply to loans made to executive officers of
the institution.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Home Loan Bank System
The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Association, as a member of the FHLB-Des Moines, is required
to acquire and hold shares of capital stock in the FHLB-Des Moines in an amount
at least equal to 1.0% of the
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<PAGE>
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB-Des Moines, whichever is greater. The Association was in
compliance with this requirement with an investment in FHLB stock at September
30, 1999, of $365,000. FHLB advances must be secured by specified types of
collateral and all long-term advances may only be obtained for the purpose of
providing funds for residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Association complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Corporation and the Association report their income on a
fiscal year, consolidated basis and the accrual method of accounting, and are
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly The Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Corporation or the Association. For its 1999 taxable year, the
Corporation is subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Code were permitted to use certain favorable provisions to
calculate their deductions from taxable income for annual additions to their bad
debt reserve. A reserve could be established for bad debts on qualifying real
property loans (generally secured by interests in real property improved or to
be improved) under (i) the percentage of taxable income method or (ii) the
experience method. The reserve for nonqualifying loans was computed using the
experience method.
Congress repealed the reserve method of accounting for bad debts for tax
years beginning after 1995 and required savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves.
Thrift institutions eligible to be treated as "small banks" (assets of $500
million or less) are allowed to use the experience method applicable to such
institutions, while thrift institutions that are treated as large banks (assets
exceeding $500 million) are required to use only the specific charge-off method.
Thus, the percentage of taxable income method of accounting for bad debts is no
longer available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any Section 481(a) adjustment required to be taken into income
with respect to such change generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a two year suspension if the "residential loan requirement" is
satisfied.
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Under the residential loan requirement provision, the required recapture
will be suspended for each of two successive taxable years, beginning with the
Association's 1996 taxable year, in which the Association originates a minimum
of certain residential loans based upon the average of the principal amounts of
such loans made by the Association during its six taxable years preceding its
current taxable year.
Distributions. If the Association makes "non-dividend distributions" to the
Corporation, such distributions will be considered to have been made from the
Association's unrecaptured tax bad debt reserves (including the balance of its
reserves as of December 31, 1987) to the extent thereof, and then from the
Association's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Association's income. Non-dividend
distributions include distributions in excess of the Association's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Association's current or accumulated
earnings and profits will not be so included in its income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Association makes a non-dividend
distribution to the Corporation, approximately one and one-half times the amount
of such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Association does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
State Taxation
Missouri imposes an 7% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross income,
deductions for municipal interest, U.S. Government interest, the bad debt
deduction computed using the reserve method and pre-1990 net operating losses
are disallowed. The Association's state franchise tax returns have not been
audited for the past five tax years.
Personnel
As of September 30, 1999, the Corporation had 25 full-time and two part-
time employees. The employees are not represented by a collective bargaining
unit and the Corporation believes its relationship with its employees to be
good.
Item 2. Description of Properties
- ----------------------------------
The Association has two offices, both of which are owned by the
Association. The Association's main office is located at 111 East Main Street,
Neosho, Missouri 64850. The office was opened in 1963 and the square footage is
approximately 6,840 feet. At September 30, 1999, the net book value of the
property (including land and building) was $442,000. The Association has one
branch office, which is located at 713 Neosho Boulevard, Neosho, Missouri 64850.
The branch office was opened in 1986 and the square footage is approximately
2,922 feet. At September 30, 1999, the net book value of the property was
$193,000. The net book value of the Association's fixtures, furniture and
equipment at September 30, 1999 was $132,000. Crawford Mortgage has furniture,
fixtures and equipment with a net book value of $45,000 at September 30, 1999.
The Corporation owns a building lot with a book value of $303,000 at September
30, 1999.
Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits involving the
Association, such as claims to enforce liens, condemnation proceedings on
properties in which the Association holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Association's business. Neither the Corporation nor the Association is a party
to any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Corporation or the
Association.
24
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Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ---------------------------------------------------------------------------
Matters
- -------
The information contained in the section captioned "Common Stock
Information" in the Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
- -----------------------------
Independent Auditors Report*
(a) Consolidated Statements of Financial Condition as of September 30,
1998 and 1999
(b) Consolidated Statements of Income for the Years Ended September 30,
1997, 1998 and 1999
(c) Consolidated Statements of Stockholders' Equity For the Years Ended
September 30, 1997, 1998 and 1999
(d) Consolidated Statements of Cash Flows For the Years Ended September
30, 1997, 1998 and 1999
(e) Notes to Consolidated Financial Statements
* Contained in the Annual Report filed as an exhibit hereto and
incorporated herein by reference. All schedules have been omitted as
the required information is either inapplicable or contained in the
Consolidated Financial Statements or related Notes contained in the
Annual Report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
No disagreement with the Corporation's independent accountants on
accounting and financial disclosure has occurred during the two most recent
fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- -----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
The information contained under the section captioned "Proposal 1 --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
The following table sets forth certain information with respect to the
executive officers of the Corporation and the Association. Each of the
executive officers holds the same position with the Corporation and the
Association.
Age at
September 30,
Name 1999 Position
- ---- ------------- --------
George A. Henry 76 Chairman of the Board
C.R. "Rick" Butler 52 President and Director
Dorothy A. LaDue 60 Senior Vice President and Secretary
Carol A. Guest 53 Treasurer
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The following is a description of the principal occupation and employment
of the executive officers of the Corporation and the Association during at least
the past five years:
George A. Henry served as a judge on the Newton County Circuit Court for 14
years until his retirement in 1990. Judge Henry has served as a director of the
Association since 1964 and was elected Chairman of the Board in 1990. He
currently serves on the Newton Country Library Board and is a past member of the
Administrative Council of the Neosho United Methodist Church.
C. R. "Rick" Butler is President of the Corporation and the Association.
Mr. Butler joined the Association in August 1982 as the managing officer and
director. He currently serves on the Board of Trustees of Crowder College, is a
board member of the Neosho United Fund and the Neosho Area Business Industrial
Development Foundation, and is a member of the Economic Development Committee of
the Neosho Area Chamber of Commerce. Mr. Butler also serves as a Director of
District 2 of the Missouri League of Financial Institutions.
Dorothy A. LaDue is Senior Vice President and Secretary of the Corporation
and the Association. Mrs. LaDue joined the Association in 1974 and has worked in
all areas of operations. She is an active member of the Neosho Area Chamber of
Commerce serving on numerous Chamber committees.
Carol A. Guest is Treasurer of the Corporation and the Association. Mrs.
Guest, a Certified Public Accountant, joined the Association in 1990 and is the
officer in charge of the Association's accounting department.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal 1 --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Stock Ownership" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the sections captioned and "Stock Ownership" and "Proposal 1 --
Election of Directors" of the Proxy Statement.
(c) Changes in Control
The Corporation is not aware of any arrangements, including any pledge
by any person of securities of the Corporation, the operation of which
may at a subsequent date result in a change in control of the
Corporation.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management."
26
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a) Exhibits
3.1 Articles of Incorporation of NS&L Bancorp, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (33-89836))
3.2 Bylaws of NS&L Bancorp, Inc. (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form
S-1 (33- 89836))
10.1 Employment Agreement with C.R. Butler (incorporated by reference
to the Registrant's Annual Report on Form 10-KSB for the year
ended September 30, 1995)
10.2 NS&L Bancorp, Inc. 1995 Stock Option Plan (incorporated by
reference to Exhibit A to the Registrant's Proxy Statement for
the 1996 Annual Meeting of Stockholders)
10.3 NS&L Bancorp, Inc. Management Recognition and Development Plan
(incorporated by reference to Exhibit B to the Registrant's Proxy
Statement for the 1996 Annual Meeting of Stockholders)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Report on Form 8-K
No Forms 8-K were filed during the quarter ended September 30, 1999.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NS&L BANCORP, INC.
Date: December 28, 1999 By:/s/ C.R. Butler
--------------------------------------------
C.R. Butler
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By:/s/C.R. Butler December 28, 1999
------------------------------------------
C.R. Butler
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/Carol A. Guest December 28, 1999
------------------------------------------
Carol A. Guest
Treasurer
(Principal Financial and
Accounting Officer)
By:/s/George A. Henry December 28, 1999
------------------------------------------
George A. Henry
Chairman of the Board and Director
By:/s/John C. Genisio December 28, 1999
------------------------------------------
John C. Genisio
Director
By:/s/John D. Mills December 28, 1999
------------------------------------------
John D. Mills
Director
By:/s/Ralph J. Haas December 28, 1999
------------------------------------------
Ralph J. Haas
Director
By:/s/Robert J. Johnson December 28, 1999
------------------------------------------
Robert J. Johnson
Director
28
<PAGE>
President's Message
To Our Stockholders:
On behalf of our Board of Directors, Officers and Employees of NS&L Bancorp,
Inc. and its wholly owned subsidiary, Neosho Savings & Loan Association, F.A.,
we are pleased to submit our fifth Annual Report as a public company.
During the fiscal year ending September 30, 1999 the Company's stock traded in a
range from $10.42 to $15.00 per share closing out the year at $11.50 per share.
To date, and in accordance with the Company's repurchase plan, we have
repurchased a total of 295,999 shares. The total shares outstanding as of the
close of business November 11, 1999 were 720,626. We are pleased to report that
operating and financial results were improved over last year's results. Our
return on average assets (ROA) was .76% compared to last year's ROA of .75% and
the return on average equity increased from 4.01% to 4.82%. The earnings per
share also increased from $ .66 to $ .74 per share. Neosho Savings & Loan
Association, F.A. reported a 9.46% growth in total assets, and loan originations
significantly increased from $11.2 million last fiscal year to $15.9 million for
the fiscal year ending September 30, 1999.
As in the past we continue to remain firm in our pledge to be a community
oriented financial institution providing affordable up to date financial
services and products to our present and future customers. As we grow and build
on our strengths, we continue to acknowledge and accept our responsibility to
you, the stockholder, to develop and set goals to increase profitability with
minimal risk that will enhance stockholder value.
THANK YOU for taking stock in our future, we look forward to a long lasting and
profitable relationship.
Sincerely,
C.R. `Rick' Butler
President
1
<PAGE>
Business of the Corporation
NS&L Bancorp, Inc. (the "Company"), a Missouri corporation, was organized
in February 1995 for the purpose of becoming the holding company for Neosho
Savings and Loan Association, F.A. (the "Association") upon the conversion of
the Association from a federal mutual to a federal stock savings and loan
association. That conversion was completed in June 1995.
The Company is not engaged in any significant business activity other than
holding the stock of Neosho Savings and Loan Association, F.A. Accordingly, the
information set forth in the report, including financial statements and related
data, applies primarily to the Association.
The Association is a federally-chartered, federally-insured stock savings
and loan association organized in 1884. The Association is regulated by the
Office of Thrift Supervision ("OTS"). Its deposits are insured up to applicable
limits by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"). The Association also is a member of the Federal
Home Loan Bank ("FHLB") System.
The Association's principal business consists of attracting deposits from
the general public through a variety of deposit programs and originating loans
secured primarily by one-to-four family residential properties. To a
significantly lesser extent, the Association originates loans secured by
commercial real estate, residential construction loans and consumer loans. The
Association also invests in mortgage-backed, U.S. Government and agency
securities and other assets.
2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the financial
position of the Company as of and for the dates indicated. The consolidated data
is derived in part from, and should be read in conjunction with the Consolidated
Financial Statements of the Company and its subsidiaries presented herein.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
FINANCIAL CONDITION DATA: (In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets.................................. $58,758 $61,807 $59,817 $63,367 $69,228
Loans receivable, net.(1)..................... 25,933 31,051 33,878 37,506 40,170
Mortgage-backed securities.................... 5,871 5,342 4,473 3,121 2,484
Cash, interest bearing deposits
and investment securities.................... 25,374 23,930 19,638 21,028 24,557
Customer deposits............................. 44,088 48,444 43,892 47,944 51,547
Advances from Federal Home Loan Bank.......... -- -- 3,000 3,986 5,856
Stockholders' equity.......................... 13,729 12,179 11,824 10,405 10,656
<CAPTION>
For the Years Ended September 30,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income............................... $ 3,284 $ 3,703 $ 3,906 $ 4,053 $ 4,361
Interest expense.............................. 1,649 1,873 2,065 2,150 2,342
------- ------- ------- ------- -------
Net interest income........................... 1,635 1,830 1,841 1,903 2,019
Provision for loan losses..................... 8 3 2 8 12
------- ------- ------- ------- -------
Net interest income after
provision for loan losses.................... 1,627 1,827 1,839 1,895 2,007
Noninterest income............................ 208 265 235 424 451
Noninterest expense........................... 1,141 1,613 1,372 1601 1703
------- ------- ------- ------- -------
Income before taxes........................... 694 479 702 718 755
Income taxes.................................. 212 152 246 264 247
------- ------- ------- ------- -------
Net income.................................... $ 482 $ 327 $ 456 $ 454 $ 508
======= ======= ======= ======= =======
Basic earnings per share.(2).................. $.51 $.35 $.57 $.66 $.74
======= ======= ======= ======= =======
Diluted earnings per share.(2)................ $.51 $.35 $.56 $.64 $.73
======= ======= ======= ======= =======
Dividends per share .(2)...................... $.08 $.40 $.42 $.42 $.59
======= ======= ======= ======= =======
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
OTHER DATA:
Number of:
<S> <C> <C> <C> <C> <C>
Real estate loans outstanding................ 889 911 948 956 987
Deposit accounts............................. 8,828 8,830 8,960 9,394 9,594
Full service offices......................... 2 2 2 2 2
<CAPTION>
At or For the Years Ended September 30,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
Return on average assets (net income
divided by average assets)................... .91% .57% .78% .75% .76%
Return on average equity (net income
divided by average equity)................... 5.57 2.43 3.83 4.01 4.82
Average equity to average assets.............. 16.40 23.34 20.27 18.71 15.86
Interest rate spread (difference
between average yield on interest-
earning assets and average cost of
interest-bearing liabilities)................ 2.66 2.23 2.31 2.38 2.41
Net interest margin (net interest
income as a percentage of average
interest-earning assets)..................... 3.23 3.26 3.22 3.23 3.12
Noninterest expense to average
assets....................................... 2.16 2.80 2.34 2.64 2.56
Average interest-earning assets
to interest-bearing liabilities.............. 118 131 125 123 120
Allowance for loan losses to total
loans at end of period....................... .15 .13 .13 .14 .14
Net charge-offs to average
outstanding loans during the period.......... -- -- -- -- --
Ratio of non-performing assets to
total assets................................. .15 .04 .03 .09 .09
Dividend payout ratio.(3)..................... 15.69 114.29 73.68 63.64 79.73
</TABLE>
- ----------------------------------------------
(1) Includes loans held for sale.
(2) Per share information for periods prior to 1999 has been adjusted to reflect
the 20% stock dividend paid in April 1999.
(3) Dividends paid divided by basic earnings per share.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
Management's discussion and analysis of the consolidated financial
condition and results of operations is intended to assist in understanding the
consolidated financial condition and results of operations of the Company. The
information contained in this section should be read in conjunction with the
Consolidated Financial Statements and accompanying notes thereto.
Operating Strategy
- ------------------
The primary goal of management is to increase the Association's
profitability and enhance its net worth while minimizing risk. Operational
results are dependent primarily on net interest income, which is the difference
between the income earned on its interest-earning assets, such as loans and
investments, and the cost of its interest-bearing liabilities, consisting of
deposits. Operational results are also significantly affected by general
economic conditions, changes in market interest rates, governmental legislation
and policies concerning monetary and fiscal affairs and housing, as well as
financial institutions and the attendant actions of the regulatory authorities.
Management strives to operate a conservative, well capitalized, profitable
thrift dedicated to financing home ownership and other consumer needs, and to
provide quality service to its customers. The Association believes it has
successfully implemented this strategy by:
Emphasizing One-to-Four Family Lending. Historically, the Association has
---------------------------------------
been predominantly a one-to-four family residential lender. Single family
residential loans constituted 94.6%, 92.5% and 88.8% of total loans at September
30, 1997, 1998 and 1999, respectively.
Maintaining Asset Quality. The Association strongly emphasizes maintaining
--------------------------
asset quality through sound underwriting, constant monitoring and effective
collection techniques. As of September 30, 1999, the Association's ratio of
non-performing assets to total assets was .09%, the same ratio as September 30,
1998. There were $1,000 in loan losses, net of recoveries, for the year ended
September 30, 1999 and no loan losses for 1998.
Managing Interest-Rate Risk. In order to reduce the impact on the
----------------------------
Association's net interest income due to changes in interest rates, the
Association's management has adopted a strategy that has been designed to
maintain the interest rate sensitivity of its assets and liabilities. The
primary elements of this strategy involve emphasizing the origination of ARM
loans and maintaining a short- and medium-term investment portfolio. At
September 30, 1999, 73.2% of the Association's loan portfolio was composed of
adjustable-rate loans.
Maintaining a High Level of Liquidity. At September 30, 1999, the
--------------------------------------
liquidity ratio of the Association was 35.6%. The Association maintains a high
level of liquidity so that it will be able to fund loans during periods of
deposit outflow. In determining the terms of its deposit accounts, the
Association does not always match above-market rates offered by competitors who
are attempting to increase market share. The Association will permit some
deposit outflow rather than increase its rate paid on deposits and reduce its
interest rate spread.
5
<PAGE>
Results of Operations
- ---------------------
The earnings of the Association depend primarily on its level of net
interest income, which is the difference between interest earned on interest-
earning assets and the interest paid on interest-bearing liabilities. Net
interest income is a function of the Association's interest rate spread, which
is the difference between the yield earned on interest-earning assets and the
rate paid on interest-bearing liabilities, as well as a function of the average
balance of interest-earning assets as compared to the average balance of
interest-bearing liabilities.
Comparison of Operating Results for the Years Ended September 30, 1998 and 1999
- -------------------------------------------------------------------------------
General. Net income increased $54,000, or 11.9% from $454,000 at September
30, 1998 to $508,000 at September 30, 1999. Earnings per share rose to $.73
(diluted) from $.64 (diluted). Interest income increased $308,000 which was
partly offset by an increase in interest expense of $192,000. Noninterest income
increased $27,000 which was offset by an increase in noninterest expense of
$102,000. Income taxes decreased $17,000. The Association's net interest
margin decreased from 3.23% for the fiscal year ended September 30, 1998 to
3.12% for the fiscal year ended September 30, 1999.
Net Interest Income. Net interest income increased $116,000, or 6.1%, from
$1,903,000 for the fiscal year ended September 30, 1998 to $2,019,000 for the
fiscal year ended September 30, 1999. Net interest income increased as a result
of an increase in interest income of $308,000 that was partially offset by an
increase in interest expense of $192,000.
Interest Income. Total interest income increased $308,000, or 7.6%, from
$4,053,000 for the year ended September 30, 1998 to $4,361,000 for the year
ended September 30, 1999. Interest income from loans receivable increased
$204,000 primarily as a result of an increase in the average balance of loans
receivable of $2,618,000 from $36,157,000 in 1998 to $38,775,000 in 1999. Loan
balances increased as a result of a more aggressive approach to solicitation and
pricing of mortgage loans. Income from investment securities increased by
$264,000 due to an increase in the average balance of those securities.
Interest income from mortgage-backed securities decreased by $75,000 as the
average balance of mortgage-backed securities decreased from $3,742,000 in 1998
to $2,978,000 in 1999. Balances in mortgage-backed securities and other
investments decreased as more emphasis was placed on originating mortgage loans.
Income from other interest earning assets decreased $85,000 from $372,000 for
the year ended September 30, 1998 to $287,000 for the year ended September 30,
1999.
Interest Expense. Interest expense on customer deposits increased $54,000,
or 2.6%, from $2,057,000 for the year ended September 30, 1998 to $2,111,000 for
the year ended September 30, 1999. The increase was due to an increase of
$3,736,000 in the average balance of interest bearing deposits from $46,118,000
for the year ended September 30, 1998 to $49,854,000 for the year ended
September 30, 1999. Interest on advances from Federal Home Loan Bank of Des
Moines increased $136,000 from $94,000 for the year ending September 30, 1998
compared to $230,000 for the year ending September 30, 1999. The increase
resulted from an increase in the average balance of advances of $2,585,000 from
$1,581,000 in 1998 to $4,166,000 in 1999.
Provision for Loan Losses. Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered by
management to adequately provide for estimated losses based on past loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of underlying
collateral, and current economic conditions. The provision for loan losses was
6
<PAGE>
$12,000 for the year ended September 30, 1999. This is an increase of $4,000
from the year ended September 30, 1998. There were $1,000 loan losses, net of
recoveries, for the fiscal year ended September 30, 1999 and no actual loan
losses in the fiscal year ended 1998.
Noninterest Income. Noninterest income increased $27,000, or 6.4% from
$424,000 for the fiscal year ended September 30, 1998 to $451,000 for the year
ended September 30, 1999. The increase resulted primarily from banking service
charges and fees and was partially offset by no gain on the sale of investments
in 1999 compared to an $18,000 gain last year.
Noninterest Expense. Noninterest expense increased $102,000, or 6.4% from
$1,601,000 for the fiscal year ended September 30, 1998 to $1,703,000 for the
year ended September 30, 1999. Compensation expense and employee benefits
increased $62,000 as a result of additional personnel as well as annual salary
increases. Occupancy and equipment expense increased $5,000, or 2.6% from
$189,000 at September 30, 1998 to $194,000 at September 30, 1999, while data
processing fees increased $18,000 or 17.6% from $102,000 at September 30, 1998
to $120,000 at September 30, 1999. In addition printing, postage, stationery
and supplies increased $14,000 as a result of normal operations of the Company.
Income Taxes. Provision for income tax expense decreased $17,000, or 6.4%
from $264,000 for the fiscal year ended September 30, 1998 to $247,000 for the
year ended September 30, 1999 as a result of lower taxable income.
Comparison of Operating Results for the Years Ended September 30, 1997 and 1998
- -------------------------------------------------------------------------------
General. Net income remained relatively stable with a decrease of $2,000,
or .4% from $456,000 at September 30, 1997 to $454,000 at September 30, 1998.
Interest income increased $147,000 which was partly offset by an increase in
interest expense of $85,000. Noninterest income increased $189,000 which was
offset by an increase in non interest expense of $229,000. Income taxes
increase $18,000 and compensation and employee benefits increased $156,000 as a
result of annual salary increases and additional personnel to operate Crawford
Mortgage, that was acquired in August 1997. The Association's net interest
margin increased from 3.22% for the year ended September 30, 1997 to 3.23% for
the year ended September 30, 1998.
Net Interest Income. Net interest income increased $62,000, or 3.4% from
$1,841,000 at September 30, 1997 to $1,903,000 at September 30, 1998. The
increase in net interest income resulted from an increase in interest income of
$147,000 and was partially offset by an increase in interest expense of $85,000.
Interest Income. Total interest income increased by $147,000, or 3.8% from
$3,906,000 at September 30, 1997 to $4,053,000 at September 30, 1998. Interest
income from loans receivable increased $304,000 primarily as a result of an
increase in the average balance of loans receivable from 1997 to 1998 of
$3,741,000. Income from investment securities decreased by $207,000 due to a
decrease in the average balance of those securities. Interest income from
mortgage-backed securities decreased by $64,000 as the average balance of
mortgage-backed securities decreased from $4,951,000 in 1997 to $3,742,000 in
1998. Balances in mortgage-backed securities and other investments decreased as
more emphasis was placed on originating mortgage loans. Income from other
interest-bearing assets increased by $113,000 due to an increase in the average
balances despite a decrease in the average yields earned on interest-bearing
assets from 4.40% in 1997 to 4.29% in 1998.
Interest expense. Interest expense on customer deposits increased by
$144,000, or 7.6% from $1,912,000 at September 30, 1997 to 2,056,000 at
September 30, 1998. This increase
7
<PAGE>
was due to an increase in the average balance of interest bearing deposits
$3,498,000. Interest on advances from Federal Home Loan Bank of Des Moines
decreased $59,000, from $153,000 in additional interest expense for the year
ending September 30, 1997 compared to $94,000 for the year ending September 30,
1998. The decrease resulted from a decrease in the average balance of advances
of $1,336,000 during 1998.
Provision for Loan Losses. The provision for loan losses was $8,000 for the
year ended September 30, 1998. This is an increase of $6,000 over the year
ended September 30, 1997. There were no actual loan losses, net of recoveries,
for the fiscal years ended September 30, 1997 and 1998.
Noninterest Income. Noninterest income increased by $189,000, or 80% from
$235,000 at September 30, 1997 to $424,000 at September 30, 1998. The increase
resulted primarily from mortgage banking fees from Crawford Mortgage, Inc., a
subsidiary of the Association acquired in August of 1997.
Noninterest Expense. Noninterest expense increased $229,000, or 16.7% from
$1,372,000 at September 30, 1997 to $1,601,000 at September 30, 1998.
Compensation and employee benefits increased $156,000, as a result of
additional personnel required in the operation of Crawford Mortgage, inc., as
well as annual salary increases. The ESOP expense was $110,000 for the year
ended September 30, 1997 compared to $122,000 for the year ended September 30,
1998. In addition, the MRDP expense was $74,000 for both years ended September
30, 1997 and 1998. Data processing expenses increased $11,000 and occupancy and
equipment expense increased $36,000 between the two periods.
Income Taxes. Provision for income tax expense increased $18,000, or 7.3%
from $246,000 at September 30, 1997 to $264,000 at September 30, 1998 as a
result of higher taxable income.
Financial Condition
- -------------------
General. During the year ended September 30, 1999, the Association
concentrated on its principal business of attracting deposits from the general
public through a variety of deposit programs and originating loans secured
primarily by owner-occupied residential properties.
Deposits are attracted from within the Association's primary market area
through the offering of a broad selection of deposit instruments, including
negotiable order of withdrawals ("NOW") accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors.
The principal lending activity of the Association is the origination of
conventional mortgage loans. The Association has emphasized the origination of
ARM loan products in order to increase the interest rate sensitivity of its loan
portfolio.
Total Assets. Total assets increased by $5,861,000, or 9.2% from
$63,367,000 at September 30, 1998 to $69,228,000 at September 30, 1999. The
increase in mortgage loans and investment securities accounts for the majority
of the asset growth and is partially offset by decreases in cash and cash
equivalents and mortgaged-backed securities.
8
<PAGE>
Cash and Cash Equivalents. Cash and cash equivalents decreased by
$8,066,000, or 77.7% to $2,317,000 at September 30, 1999 from $10,383,000 at
September 30, 1998. This decrease was a result of the purchase of $10.6 million
in investment securities and an increase of $2,663,000 in mortgage loans.
Certificates of Deposit. Certificates of deposit purchased as investments
totaled $1,664,000 at September 30, 1999, an increase of $990,000 from $674,000
at September 30, 1998.
Investment Securities. Investment securities increased by $10,606,000, or
110.4%, from $9,605,000 at September 30, 1998 to $20,211,000 at September 30,
1999 as more money was used to invest in investment securities.
Federal Home Loan Bank Stock. Investments in Federal Home Loan Bank stock
remained unchanged at September 30, 1998 and 1999.
Mortgage-backed Securities. Mortgage-backed securities decreased by
$637,000, or 20.4%, from $3,121,000 at September 30, 1998 to $2,484,000 at
September 30, 1999. The decrease was due to the receipt of principal payments
on those securities.
Loans Receivable. The balance of net loans increased $2,664,000, or 7.1%,
to $40,170,000 at September 30, 1999 from $37,506,000 at September 30, 1998.
The increase in loans was primarily the result of increases in one-to-four
family residential real estate loans, equity line of credit loans (ELOC) and
construction loans which are adjustable rate and fixed rate mortgages that were
funded from funds on hand and cash advances from FHLB of Des Moines.
Deposits. Deposits increased $3,603,000, or 7.5%, to $51,547,000 at
September 30, 1999 compared to $47,944,000 at September 30, 1998. The increase
can be attributed to growth partially as a result of deposit transfers from
larger banks, an increase in interest rates, and a short term deposit of $1.6
million.
FHLB Advances. The use of cash advances from Federal Home Loan Bank of Des
Moines were utilized during the fiscal year ending September 30,1999 as part of
the Association's investment strategy to hedge against interest rate risk on the
fixed rate, fixed term loans that were originated by the Association to hold in
it's portfolio and as needed for liquidity purposes. The Association borrowed a
net $1.9 million additional in advances during the year ended September 30,
1999.
Stockholders' Equity. Stockholders' equity increased $251,000, or 2.4%,
from $10,405,000 at September 30, 1998 to $10,656,000 at September 30, 1999, as
a result of net income of $508,000 and was offset by quarterly dividend
payments. During the year ended September 30, 1999, the Company repurchased
1,100 shares of treasury stock at a cost of $14,000.
9
<PAGE>
Yields Earned and Rates Paid
- ----------------------------
The earnings of the Association depend largely on the spread between the
yield on interest-earning assets and the cost of interest-bearing liabilities,
as well as the relative size of the Association's interest-earning assets and
interest-bearing liability portfolios.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances have been calculated
using the average of month-end balances during such year.
10
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------------------------------
1997 1998
---------------------------------------------------------------------------------
Average Interest & Yield/ Average Interest & Yield/
Balance (2) Dividends Cost Balance (2) Dividends Cost
------------- ---------- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $32,416 $2,391 7.38% $36,157 $2,695 7.45%
Investment securities 13,815 895 6.48 10,297 689 6.69
Mortgage-backed and related securities 4,951 361 7.29 3,742 297 7.94
Daily interest-bearing assets 5,881 259 4.40 8,663 372 4.29
------------- ---------- ---------- ----------
Total interest-earning assets 57,063 3,906 6.85 58,859 4,053 6.89
Noninterest-earning assets:
Office properties and
equipment, net 1,073 1,141
Other noninterest-earning assets 584 598
------------- ----------
Total assets $58,720 $60,598
============= ==========
Interest-earning liabilities:
Passbook savings accounts 5,752 160 2.78 5,800 160 2.76
Demand and NOW accounts 5,953 138 2.32 7,103 179 2.52
Money market accounts 2,839 92 3.24 2,861 93 3.25
Certificates of deposit 28,076 1,522 5.42 30,354 1,624 5.35
------------- ---------- ---------- ----------
Total deposits 42,620 1,912 4.49 46,118 2,056 4.46
Advances from FHLB 2,917 153 5.25 1,581 94 5.95
------------- ---------- ---------- ----------
Total interest-bearing liabilities 45,537 2,065 4.54 47,699 2,150 4.51
Noninterest-bearing liabilities:
Noninterest bearing deposits 293 570
Other liabilities 990 993
------------- ----------
Total liabilities 46,820 49,262
Stockholders' equity 11,900 11,336
------------- ----------
Total liabilities and
stockholders' equity $58,720 $60,598
============= ==========
Net interest income $1,841 $1,903
========== ==========
Interest rate spread 2.31 2.38
Net interest margin 3.22 3.23
Ratio of average interest-earning
assets to average interest-
bearing liabilities 125% 123%
<CAPTION>
Years ended September 30,
--------------------------------
1999
--------------------------------
Average Interest & Yield/
Balance (2) Dividends Cost
----------- ----------- --------
<S> <C> <C> <C>
Interest-earning assets: $38,775 $ 2,899 7.48%
Loans receivable (1) 15,396 953 6.19
Investment securities 2,978 222 7.45
Mortgage-backed and related securities 7,495 287 3.83
----------- ---------
Daily interest-bearing assets 64,644 4,361 6.75
Total interest-earning assets
Noninterest-earning assets:
Office properties and
equipment, net 1,132
Other noninterest-earning assets 744
-----------
Total assets $66,520
===========
Interest-earning liabilities:
Passbook savings accounts 5,898 163 2.76
Demand and NOW accounts 8,603 221 2.57
Money market accounts 2,778 90 3.24
Certificates of deposit 32,575 1,638 5.03
----------- ---------
Total deposits 49,854 2,112 4.24
Advances from FHLB 4,166 230 5.52
----------- ---------
Total interest-bearing liabilities 54,020 2,342 4.34
Noninterest-bearing liabilities:
Noninterest bearing deposits 875
Other liabilities 1,075
-----------
Total liabilities 55,970
Stockholders' equity 10,550
-----------
Total liabilities and
stockholders' equity $66,520
===========
Net interest income $2,019
=========
Interest rate spread 2.41
Net interest margin 3.12
Ratio of average interest-earning
assets to average interest-
bearing liabilities 120%
</TABLE>
- --------------------------------------
(1) Average balances include nonaccrual loans and loans 90 days or more past
due and loans held for sale.
(2) Average balances for a period have been calculated using the average of
month-end balances during such period.
11
<PAGE>
The following table sets forth (on a consolidated basis) for the periods
and at the dates indicated, the weighted average yields earned on the Company's
assets, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
At
Years Ended September 30, September 30,
-------------------------------------
1997 1998 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on loan portfolio..... 7.38% 7.45% 7.48% 7.33%
Weighted average yield on mortgage-
backed and related securities............. 7.29 6.69 7.45 7.50
Weighted average yield on investment
securities................................ 6.48 7.94 6.19 6.52
Weighted average yield on interest-
bearing deposits.......................... 4.40 4.29 3.83 2.61
Weighted average yield on all interest-
earning assets............................ 6.85 6.89 6.75 6.73
Weighted average rate paid on
total deposits............................ 4.49 4.46 4.24 3.97
Weighted average rate paid on all
advances from FHLB........................ 5.25 5.95 5.52 4.64
Weighted average rate paid on all
interest-bearing liabilities.............. 4.54 4.51 4.34 4.04
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities)...................... 2.31 2.38 2.41 2.69
Net interest margin (net interest income
as a percentage of average
interest-earning assets).................. 3.22 3.23 3.12 N/A
</TABLE>
12
<PAGE>
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) changes
in rate/volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------------------------------------
1998 Compared to 1997 1999 Compared to 1998
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- ---------------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ ---- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 23 $278 $ 3 $304 $ 10 $195 ($1) $204
Investment securities 29 (228) (7) (206) (51) 341 (26) 264
Mortgage-backed and related securities 32 (88) (8) (64) (18) (61) 4 (75)
Daily interest-bearing deposits (6) 122 (3) 113 (40) (50) 5 (85)
---- ----- ----- ---- ---- ----- ----- ----
Total net change in income
on interest-bearing assets 78 84 (15) 147 (99) 425 (18) 308
Interest-bearing liabilities:
Interest-bearing deposits (13) 157 -- 144 (102) 166 (8) 56
Advances from FHLB 20 (70) (9) (59) (7) 154 (11) 136
---- ----- ----- ---- ---- ----- ----- ----
Total net change in expenses
on interest-bearing liabilities 7 87 (9) 85 (109) 320 (19) 192
---- ----- ----- ---- ---- ----- ----- ----
Net change in net interest income $ 71 $ (3) $ (6) $ 62 $ 10 $105 $ 1 $116
==== ===== ===== ==== ==== ===== ===== ====
</TABLE>
____________________
(1) For purposes of calculating volume, rate, and rate/volume variances,
nonaccrual loans were included in the weighted-average balance outstanding.
13
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits and proceeds
from principal and interest payments on loans and mortgage-backed securities.
While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition. The Association also has access to and has begun to
use advances from the Federal Home Loan Bank of Des Moines to supplement its
supply of funds.
The primary investing activity of the Association is the origination
of loans and purchasing of investment securities and mortgage-backed securities.
Mortgage loan originations in excess of repayments totaled $2,664,000 and a net
increase in investments securities of $10,606,000 while mortgage-backed
securities had a net decrease of $637,000 during the year ended September 30,
1999. These activities were primarily funded by cash on hand, maturing and
calling of investments and the use of cash advances from Federal Home Loan Bank
of Des Moines.
The Association must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. During fiscal years 1997 and 1998 the Association
used its sources of funds primarily to fund loan commitments and to pay maturing
savings certificates and deposit withdrawals. During fiscal year 1999, the
Association used its sources of funds and cash advances to fund loan commitments
and purchase investment securities. At September 30, 1999, the Association had
loan commitments of $1,501,000.
At September 30, 1999, savings certificates amounted to $33,222,000,
or 64.5%, of the Association's total deposits, including $23,703,000 which were
scheduled to mature by September 30, 2000. Historically, the Association has
been able to retain a significant amount of its deposits as they mature.
Management of the Association believes it has adequate resources to fund all
loan commitments by savings deposits and FHLB advances and that it can adjust
the offering rates of savings certificates to retain deposits in changing
interest rate environments.
During the year ended September 30, 1999, the OTS required a savings
institution to maintain an average daily balance of liquid assets (cash and
eligible investments) equal to at least 4.0% of the average daily balance of its
net withdrawal deposits and short-term borrowings. The Association's average
liquidity ratios were 35.6%, 36.7% and 39.4% during the years ended September
30, 1997, 1998 and 1999, respectively. The Association's actual ratio at
September 30, 1999 was 35.6%. The Association consistently maintains liquidity
levels in excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.
The Association is required to maintain specific amounts of capital
pursuant to OTS requirements. As of September 30, 1999, the Association was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 13.3%, 13.3% and
29.9%, respectively. See Note 18 of the Notes to Consolidated Financial
Statements.
14
<PAGE>
Effect of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering the change
in the relative purchasing power of money over time due to inflation. The
primary impact of inflation on operations of the Association is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services
Impact of New Accounting Standards
- ----------------------------------
See Note 1 of the Notes to the Consolidated Financial Statements.
Year 2000 Issue
- ----------------
A Y2K Readiness Disclosure
The Company has researched the "Year 2000" problem and developed a plan to
identify and correct any potential problems that may affect operations in
addition to developing a business resumption plan in the event unexpected major
problems develop at the change to the year 2000.
The Company's mission critical system is its data center, FISERV of Des Moines,
Iowa. FISERV has upgraded their systems for Y2K and proxy testing of those
systems has been completed. Results of the proxy testing have been received and
have been examined by appropriate Company personnel. Some problems were noted
in the proxy testing and corrected. Connectivity testing was successfully
completed in the Y2K mode. In July 1999, FISERV changed the transmission method
with the Company from satellite to land lines. The land system has been Y2K
proxy tested and certified Y2K Compliant.
The Company has PC teller on-line stations which have been certified Y2K
compliant through testing by FISERV. In addition all personal computers have
been upgraded and tested for compliance with Y2K. If some of the personal
computers should fail in the year 2000 despite the Y2K certification, management
feels a portion of these computers would probably work and be utilized. If
necessary, personnel could operate in a manual mode until such time as
corrections could be made.
Central information file listings of all accounts in alphabetical order was
successfully transmitted via overnight reporting on September 21, 1999. This
updated information will also be sent on December 29 and 30, 1999 as a part of a
contingency plan to continue operations in the event of power failures or other
problems in the rollover to the new millennium.
A review of loans by appropriate internal personnel determined the Company has
no major multi-family or commercial borrowers. The Company primarily makes
loans for 1-4 family
15
<PAGE>
residences which diversifies the borrowers and makes it less likely a Y2K
problem will affect repayments to the Company's loan portfolio. It is
management's decision that an outside analysis of the Company's Year 2000
exposure is unnecessary since all data processing is done by an external vendor
and there are no major risk factors in the loan repayment area.
The Company's three ATM's have had software upgrades to make them Y2K compliant
and proxy testing was also completed on all models of ATMs owned by the Company
by SHAZAM, the ATM service provider.
Contingency plans include the possible use of another data center or an in-house
system, in the event the current data processor (FISERV) system fails. Two data
centers and two sources for "in-house" systems have been located as a part of
our contingency plan. In addition, as part of the business resumption plan,
the Company has ordered paper copies (central information files) of all accounts
at the end of 1999 to enable Company employees to perform manual calculation, if
necessary, until a switch can be made to another processor or FISERV can resume
processing.
Contacts have been made with third party vendors, such as the electric company,
and no Y2K problems have been noted. As a result of the extensive testing
through FISERV, Year 2000 problems are not anticipated and there are no known
problems that are material to the Company's business, operations or financial
condition.
16
<PAGE>
[KIRKPATRICK, PHILLIPS & MILLER LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
NS&L Bancorp, Inc. and Subsidiary
Neosho, Missouri
We have audited the accompanying consolidated statements of financial condition
of NS&L Bancorp, Inc. and Subsidiary as of September 30, 1998 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform these audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NS&L Bancorp, Inc.
and Subsidiary as of September 30, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
/s/ Kirkpatrick, Phillips & Miller
November 11, 1999
Springfield, Missouri
17
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
September 30, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
-------------- ---------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents, including
interest-bearing accounts of $9,697,525 in
1998 and $1,371,255 in 1999 $10,383,379 $ 2,316,542
Certificates of deposit 674,000 1,664,000
Investment securities available-for-sale,
at fair value (Notes 1 and 3) 203,850 183,031
Investment securities held-to-maturity
(estimated market value of $9,701,638 in 1998
and $19,540,819 in 1999)(Notes 1 and 3) 9,401,155 20,028,363
Investment in Federal Home Loan Bank stock, at cost (Note 4) 365,400 365,400
Mortgage-backed securities held-to-maturity
(estimated market value of $3,205,626 in 1998
and $2,525,001 in 1999)(Notes 1 and 5) 3,121,405 2,483,912
Loans held for sale (Note 1) 85,582 79,262
Loans receivable, net (Notes 1 and 6) 37,420,586 40,090,543
Income taxes recoverable - current (Note 9) - 82,489
Accrued interest receivable (Note 7) 360,216 513,563
Property and equipment,
less accumulated depreciation (Notes 1 and 8) 1,130,031 1,118,904
Intangible assets (Note 1) 80,559 77,775
Other assets 140,370 223,746
----------- -----------
Total assets $63,366,533 $69,227,530
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Customer deposits (Note 10) $47,944,489 $51,546,988
Advances from Federal Home Loan Bank (Note 11) 3,986,132 5,855,578
Advances from borrowers for taxes and insurance 305,199 354,010
Income taxes payable - current (Note 9) 10,519 -
Deferred income taxes (Notes 1 and 9) 340,110 344,180
Other liabilities 375,456 470,314
----------- -----------
Total liabilities 52,961,905 58,571,070
----------- -----------
Commitments and Contigencies (Note 16) - -
Preferred stock, $.01 par value; 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 8,000,000 shares authorized,
issued 886,314 in 1998 and 1,012,441 in 1999, outstanding
616,839 in 1998 and 741,866 in 1999 8,863 10,124
Paid-in capital 8,514,679 10,370,931
Retained earnings - substantially restricted (Note 18) 6,647,884 4,956,386
Treasury stock, at cost, 269,475 shares in 1998
and 270,575 in 1999 (4,160,375) (4,174,612)
Unearned compensation (Note 12) (637,199) (524,029)
Accumulated other comprehensive income 30,776 17,660
----------- -----------
Total stockholders' equity 10,404,628 10,656,460
----------- -----------
Total liabilities and stockholders' equity $63,366,533 $69,227,530
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
18
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Years Ended September 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Interest Income:
Loans receivable $2,391,319 $2,695,123 $2,898,515
Investment securities 894,610 689,208 952,735
Mortgage-backed and related securities 361,409 296,973 222,218
Other interest-earning assets 258,951 372,111 287,216
---------- ---------- ----------
Total interest income 3,906,289 4,053,415 4,360,684
---------- ---------- ----------
Interest Expense:
Customer deposits 1,912,171 2,056,649 2,111,134
Federal Home Loan Bank advances 153,359 93,839 230,347
---------- ---------- ----------
Total interest expense 2,065,530 2,150,488 2,341,481
---------- ---------- ----------
Net interest income 1,840,759 1,902,927 2,019,203
Provision for Loan Losses 2,195 7,825 12,112
---------- ---------- ----------
Net interest income after provision for loan losses 1,838,564 1,895,102 2,007,091
---------- ---------- ----------
Noninterest Income:
Gain on sale of investment securities 36,859 18,125 -
Gain on sale of loans 286 9,732 70,278
Banking service charges and fees 145,751 162,902 206,821
Mortgage banking fees 33,219 219,843 152,099
Loan late charges 7,208 7,621 8,840
Other 11,576 5,353 13,031
---------- ---------- ----------
Total noninterest income 234,899 423,576 451,069
---------- ---------- ----------
Noninterest Expense:
Compensation and
employee benefits (Notes 12 and 13) 784,706 940,765 1,002,621
Occupancy and equipment 152,571 188,689 194,423
Deposit insurance premium 39,171 28,280 29,250
Data processing 91,095 102,418 120,301
Printing, postage, stationery and supplies 55,937 56,001 70,217
Professional fees 62,959 52,979 53,227
Other 185,216 231,402 232,674
---------- ---------- ----------
Total noninterest expense 1,371,655 1,600,534 1,702,713
---------- ---------- ----------
Income before taxes 701,808 718,144 755,447
Income Taxes (Note 9) 246,209 263,879 247,221
---------- ---------- ----------
Net income $ 455,599 $ 454,265 $ 508,226
========== ========== ==========
Basic earnings per share (Notes 1 and 14) $ 0.57 $ 0.66 $ 0.74
========== ========== ==========
Diluted earnings per share (Notes 1 and 14) $ 0.56 $ 0.64 $ 0.73
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
19
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common
Stock Paid-In Retained Treasury
---------------------
Shares Amount Capital Earnings Stock
--------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1996 759,082 $ 8,878 $ 8,415,931 $ 6,363,058 $ (1,675,943)
Net income - - - 455,599 -
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $34,397 - - - - -
Less: reclassification adjustment, net of
deferred income taxes of $(13,638) - - - - -
Total Comprehensive Income
Net proceeds from issuance of common stock 500 5 8,120 - -
Proceeds from exercise of stock options 1,000 10 12,928 - -
Common stock acquired by MRDP (Note 12) - - - - -
Dividends ($.42 per share) - - - (326,504) -
Purchase of treasury stock at cost (50,100) - - - (793,035)
Issuance of treasury stock 4,184 - 21,846 - 54,654
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 41,274 - -
Forfeiture of MRDP shares (3,000) (30) (38,970) 1,575 -
--------- -------- --------- ----------- ------------
Balances at September 30, 1997 711,666 8,863 8,461,129 6,493,728 (2,414,324)
Net income - - - 454,265 -
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,340) - - - - -
Less: reclassification adjustment, net of
deferred income taxes of $(6,706) - - - - -
Total Comprehensive Income
Dividends ($.42 per share) - - - (300,109) -
Purchase of treasury stock at cost (94,827) - - - (1,746,051)
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 53,550 - -
--------- -------- --------- ----------- ------------
Balances at September 30, 1998 616,839 8,863 8,514,679 6,647,884 (4,160,375)
Net income - - - 508,226 -
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,703) - - - - -
Total Comprehensive Income
Dividends ($.59 per share) - - - (391,605) -
Stock dividend (20%) 123,627 1,236 1,806,883 (1,808,119) -
Net proceeds from issue of common stock 2,500 25 33,725 - -
Common stock acquired by MRDP (Note 12) - - - - -
Purchase of treasury stock at cost (1,100) - - - (14,237)
Vesting of MRDP shares (Note 12) - - - - -
Release of ESOP shares (Note 12) - - 15,644 -
--------- -------- ----------- ----------- ------------
Balances at September 30, 1999 741,866 $ 10,124 $10,370,931 $ 4,956,386 $ (4,174,612)
========= ======== =========== =========== ============
<CAPTION>
Accumulated
Other Total
Unearned Comprehensive Stockholders'
Compensation Income Equity
------------- ------------- --------------
<S> <C> <C> <C>
Balances at September 30, 1996 $ (952,706) $ 19,345 $ 12,178,563
--------------
Net income - - 455,599
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $34,397 - 58,568 58,568
Less: reclassification adjustment, net of
deferred income taxes of $(13,638) - (23,221) (23,221)
--------------
Total Comprehensive Income 490,946
--------------
Net proceeds from issuance of common stock - - 8,125
Proceeds from exercise of stock options - - 12,938
Common stock acquired by MRDP (Note 12) (8,125) - (8,125)
Dividends ($.42 per share) - - (326,504)
Purchase of treasury stock at cost - - (793,035)
Issuance of treasury stock - - 76,500
Vesting of MRDP shares (Note 12) 73,519 - 73,519
Release of ESOP shares (Note 12) 68,519 - 109,793
Forfeiture of MRDP shares 39,000 - 1,575
------------ ------------ --------------
Balances at September 30, 1997 (779,793) 54,692 11,824,295
--------------
Net income - - 454,265
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,340) - (12,497) (12,497)
Less: reclassification adjustment, net of
deferred income taxes of $(6,706) - (11,419) (11,419)
--------------
Total Comprehensive Income 430,349
--------------
Dividends ($.42 per share) - - (300,109)
Purchase of treasury stock at cost - - (1,746,051)
Vesting of MRDP shares (Note 12) 74,074 - 74,074
Release of ESOP shares (Note 12) 68,520 - 122,070
------------ ------------ --------------
Balances at September 30, 1998 (637,199) 30,776 10,404,628
--------------
Net income - - 508,226
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale, net of deferred
income taxes of $(7,703) - (13,116) (13,116)
--------------
Total Comprehensive Income 495,110
--------------
Dividends ($.59 per share) - - (391,605)
Stock dividend (20%) - - -
Net proceeds from issue of common stock - - 33,750
Common stock acquired by MRDP (Note 12) (33,750) - (33,750)
Purchase of treasury stock at cost - - (14,237)
Vesting of MRDP shares (Note 12) 78,575 - 78,575
Release of ESOP shares (Note 12) 68,346 - 83,990
------------ ------------ --------------
Balances at September 30, 1999 $ (524,029) $ 17,660 $ 10,656,460
============ ============ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
20
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended September 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 455,599 $ 454,265 $ 508,226
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 84,895 88,479 95,502
Amortization 232 2,784 2,784
Premiums and discounts on mortgage-backed
securities and investment securities (103,647) (116,814) (90,640)
Origination of loans held for sale (72,276) (968,673) (5,611,609)
Proceeds from sale of loans held for sale 57,142 923,282 5,687,356
Loss on loans, net of recoveries 2,195 7,825 12,112
Gain on sale of investment securities (36,859) (18,125) -
Gain on sale of loans (283) (9,732) (70,278)
Loss on sale of equipment 795 - 1,217
Vesting of MRDP shares 73,519 74,074 78,574
Release of ESOP shares 109,793 122,070 83,990
Net change in operating accounts:
Accrued interest receivable (62,745) 93,990 (153,347)
Other assets 83,508 893 (83,376)
Other liabilities (229,251) 52,263 53,265
Income taxes payable - deferred 96,906 (24,073) 11,773
Income taxes payable - current 769 (58,716) (93,008)
----------- ----------- ------------
Net cash from operating activities 460,292 623,792 432,541
----------- ----------- ------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (2,803,760) (6,602,800) (15,087,234)
Proceeds from maturities of investment
securities held-to-maturity 975,000 10,344,102 4,535,000
Proceeds from maturities of investment
securities available-for-sale 500,000 - -
Net change in certificates of deposit 2,220,553 (297,000) (990,000)
Proceeds from sales of investment
securities available-for-sale 251,859 43,125 -
Proceeds from sale of Federal Home Loan Bank stock - 55,200 -
Net change in loans receivable (2,781,216) (3,591,801) (2,686,745)
Purchase of mortgage-backed and
related securities held-to-maturity (315,038) - (560,507)
Proceeds from principal payments and
maturities of mortgage-backed securities
held-to-maturity 1,196,993 1,378,323 1,213,666
Proceeds from sale of repossessed assets - - 5,527
Purchases of property and equipment (325,119) (58,660) (85,592)
Acquisition of Crawford Mortgage Inc, net of cash (52,588) - -
----------- ----------- ------------
Net cash from (used in) investing activities $(1,133,316) $ 1,270,489 $(13,655,885)
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
21
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand deposits,
savings accounts, and certificates of deposit $(4,551,158) $ 4,052,114 $ 3,602,499
Proceeds from Federal Home Loan Bank advances 3,500,000 3,000,000 2,000,000
Payments on Federal Home Loan Bank advances (500,000) (2,013,868) (130,556)
Proceeds from issuance of common stock 12,938 - -
Cash dividends paid (330,856) (311,963) (350,010)
Purchase of treasury stock (793,035) (1,746,051) (14,237)
Net increase (decrease) in mortgage escrow funds 3,077 (12,349) 48,811
----------- ----------- -----------
Net cash from (used in) financing activities (2,659,034) 2,967,883 5,156,507
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (3,332,058) 4,862,164 (8,066,837)
Cash and cash equivalents-beginning of year 8,853,273 5,521,215 10,383,379
----------- ----------- -----------
Cash and cash equivalents-end of year $ 5,521,215 $10,383,379 $ 2,316,542
=========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 2,045,292 $ 2,158,283 $ 2,362,186
Income taxes 147,476 348,953 329,097
Supplemental schedule of non-cash
investing and financing activities:
Dividends declared September 22,
1997, payable October 31, 1997 $ 88,959 $ - $ -
Dividends declared September 17,
1998, payable October 30, 1998 - 77,105 -
Dividends declared September 15,
1999, payable October 29, 1999 - - 118,699
Issuance of treasury stock during
acquisition of subsidiary 76,500 - -
Loan receivable transferred to property and
equipment in settlement of loan - 11,811 -
Loan transferred to repossessed assets - - 5,527
Loans charged off to reserve - - 1,018
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NS&L Bancorp, Inc. (the "Company") is a Missouri corporation that was
organized in February 1995 for the purpose of becoming a unitary
savings and loan holding company for Neosho Savings and Loan
Association, F.A. (the "Association"). The Association is primarily
engaged in providing a full range of banking and mortgage services to
individuals and corporate customers. In August of 1997 Crawford
Mortgage, Inc. was formed as a subsidiary of the Association. Crawford
Mortgage, Inc. originates mortgages primarily in Missouri.
To assist the reader in evaluating the financial statements of NS&L
Bancorp, Inc. and Subsidiary, the significant accounting policies are
summarized below.
Use of estimates - Management uses estimates and assumptions in preparing
these financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were used.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowances
for loan losses and foreclosed real estate. Such agencies may require
the Association to recognize additions to the allowances based on
their judgments about information available to them at the time of
their examination.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of NS&L Bancorp, Inc. and its wholly-
owned subsidiary, the Association, and NS&L Enterprises and Crawford
Mortgage Inc., wholly-owned subsidiaries of the Association. In
consolidation, all significant intercompany balances and transactions
have been eliminated.
Consolidated statements of cash flows - For purposes of the consolidated
statements of cash flows, cash consists of cash on hand and deposits
with other financial institutions which are unrestricted as to
withdrawal or use. Cash equivalents include highly-liquid instruments
with an original maturity of three months or less.
23
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Investment securities and mortgage-backed securities - Securities are
classified in accordance with the Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which established three classifications
of investment securities: held-to-maturity, trading and available-for-
sale. Trading securities are acquired principally for the purpose of
near term sales. Such securities are reported at fair value and
unrealized gains and losses are included in income. At September 30,
1998 and 1999, the Company had no securities designated as trading
securities. Securities which are designated as held-to-maturity are
designated as such because the investor has the ability and the intent
to hold these securities to maturity. Such securities are reported at
amortized cost.
All other securities are designated as available-for-sale, a
designation which provides the investor with certain flexibility in
managing its investment portfolio. Such securities are reported at
fair value; net unrealized gains and losses are excluded from income
and reported net of applicable income taxes as a separate component of
stockholders' equity. Gains or losses on sales of securities are
recognized in operations at the time of sale and are determined by the
difference between the net sales proceeds and the cost of the
securities using the specific identification method, adjusted for any
unamortized premiums or discounts. Premiums or discounts are amortized
or accreted to income using the interest method over the period to
maturity.
Loans held for sale - Loans held for sale include mortgage and education
loans and are carried at the lower of cost or fair value on an
aggregate basis.
Loans receivable - Loans receivable are stated at their principal amount
outstanding, net of deferred loan origination and commitment fees and
certain direct costs, which are recognized over the contractual life
of the loan as an adjustment of the loan's yield. Interest income on
loans is recognized on an accrual basis.
Non-performing loans are placed on a nonaccrual status when it is
determined that the payment of interest or principal is doubtful of
collection, or when interest or principal is past due 90 days or more,
except when the loan is well secured and in the process of collection.
Any accrued but uncollected interest previously recorded on such loans
is generally reversed in the current period and interest income is
subsequently recognized upon collection. Cash collections subsequently
received are applied against outstanding principal until the loan is
considered fully collectible, after which cash collections are
recognized as interest income. As of September 30, 1999, the Company
had no loans which were impaired.
Property, equipment and related depreciation - Property and equipment have
been stated at cost. Depreciation has been principally computed by
applying the following methods and estimated lives:
<TABLE>
<CAPTION>
Category Estimated Life Method
---------------------- -------------- -----------------
<S> <C> <C>
Office furniture, Straight-line and
fixtures and equipment 3-10 Years declining-balance
Buildings and lease- Straight-line and
hold improvements 10-40 Years declining-balance
</TABLE>
24
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Intangible assets - Intangible assets have been recorded by the Association
in connection with the acquisition of the net assets of Crawford
Mortgage and Financial Services, Inc., which is discussed further in
Note (2). Goodwill, which represents the excess of the purchase price
over the estimated market value of net assets acquired, is being
amortized on a straight-line basis over thirty years. Amortization
expense charged to operations amounted to $2,784 for each of the years
ended September 30, 1998 and 1999.
Income taxes - The Company files a consolidated federal income tax return
with its wholly-owned subsidiary. The income tax effect of timing
differences in reporting transactions for financial reporting and
income tax purposes is reflected in the financial statements as
deferred income taxes.
Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. A valuation allowance would
be established to reduce deferred tax assets if it is more likely than
not that all, or some portion, of a deferred tax asset will not be
realized.
Allowance for loan losses - The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries, if
any. Management's periodic evaluation of the adequacy of the allowance
is based on the Association's past loan loss experiences, known and
inherent risks in the portfolio, adverse situations that may affect
the borrowers ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Management has considered
the effect of the of the year 2000 issues on major borrowers in the
determination of the adequacy of the allowance for loan losses.
Foreclosed real estate - Real estate acquired in settlement of loans is
carried at the lower of the balance of the related loan at the time of
foreclosure or fair value less the estimated costs to sell the asset.
Loan origination fees - Loan fees received are accounted for in accordance
with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." Under SFAS No. 91, loan origination fees and certain
direct loan origination costs are deferred and recognized in interest
income over the contractual lives of the related loans using the
interest method. When a loan is paid off or sold, the unamortized
balance of these deferred fees and costs are recognized in income.
Advertising costs - The Company expenses non-direct response advertising
costs as they are incurred.
Stock dividend - On March 24, 1999, the Company's Board of Directors
declared a twenty percent stock dividend of NS&L Bancorp, Inc. common
stock to stockholders of record on April 15, 1999, payable on April
30, 1999. Common stock and paid-in capital was increased and retained
earnings was reduced for the aggregate value of the shares issued. The
stated par value of each share was not changed from $.01.
All per share amounts and average shares outstanding have been
restated to reflect the aforementioned stock dividend.
25
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Earnings per share - In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
replaces the presentation of primary earnings per share with a
presentation of basic and diluted earnings per share on the face of
the income statement for all entities with complex capital structures.
SFAS No. 128 also requires a reconciliation of the numerator and
denominator of the basic and diluted earnings per share computation.
The Company adopted SFAS No. 128 for the year ended September 30,
1998, and prior periods were restated. The adoption of this standard
did not have a material effect on previously reported earnings per
share.
Basic earnings per share excludes dilution and is computed by dividing
net income available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
resulted in the issuance of common stock that would share in the
earnings of the Company. Dilutive potential common shares are added to
weighted average shares used to compute basic earnings per share. The
number of shares that would be issued from the exercise of stock
options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the
Company's stock.
Comprehensive income - The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of October 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section
of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS No. 130 had
no effect on the Company's net income or shareholders' equity.
New accounting standards - In June 1998, FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the Statement of
Financial Position and measure those instruments at fair value. This
Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The adoption of this standard is not
expected to have a material impact on the Company.
In October 1999, FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which established
accounting and reporting standards for certain activities of mortgage
banking enterprises and other enterprises that are substantially
similar to the primary operations of a mortgage banking enterprise. It
requires that after the securitization of a mortgage loan held for
sale, an entity engaged in mortgage banking activities classify the
resulting mortgage-backed security as a trading security. This
statement is effective for the first fiscal quarter beginning after
December 15, 1998. The adoption of this standards is not expected to
have a material impact on the Company.
26
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
--------------------------------------------------------
Reclassifications - Certain accounts in the prior-years' consolidated
financial statements have been reclassified for comparative purposes
to conform with the presentation in the current-year consolidated
financial statements.
(2) ACQUISITION
-----------
During 1997, the Association formed a new subsidiary, Crawford Acquisition
Company for the sole purpose of acquiring Crawford Mortgage and Financial
Services, Inc.. On August 26, 1997, Crawford Acquisition Company acquired
all of the capital stock of Crawford Mortgage and Financial Services, Inc.
in a business combination accounted for as a purchase. Crawford Mortgage
and Financial Services, Inc. was engaged in originating mortgages primarily
in Missouri. After the acquisition, Crawford Mortgage and Financial
Services, Inc. was merged into Crawford Acquisition Company and the name
was changed to Crawford Mortgage, Inc. The results of operations of
Crawford Mortgage, Inc. are included in the accompanying financial
statements since the date of formation.
The total cost of this acquisition, which was based on fair market values
of the net assets acquired, was as follows:
<TABLE>
<S> <C>
Cash $ 20,911
Loans and accrued interest 33,432
Property and equipment 40,466
Goodwill 83,575
Accounts Payable (10,555)
Income tax payable (12,304)
Other liabilities (5,525)
--------
Total cost of net assets acquired $150,000
========
</TABLE>
The purchase price was comprised of 4,184 shares of NS & L Bancorp, Inc.
common stock, valued at $76,500 and cash of $73,500.
The table below presents an unaudited pro forma combined summary of
operations of the Company for the year ended September 30, 1997.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Interest Income $3,908,632
Interest Expense 2,065,578
----------
Net interest income 1,843,054
Provision for loan losses 2,195
Noninterest Income 494,237
Noninterest Expense 1,568,483
----------
Income before income taxes 766,613
Income taxes 262,309
----------
Net Income $ 504,304
==========
Basic earnings per share $ .63
==========
Diluted earnings per share $ .62
==========
</TABLE>
27
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(3) INVESTMENT SECURITIES
---------------------
As discussed in Note (1), the Company has designated certain securities as
available-for-sale. The carrying amounts of investment securities as shown
in the consolidated balance sheets, and their approximate market values
were as follows:
A summary of investment securities available-for-sale at September 30, 1998
is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
----------------
Cost Gains Losses Value
--------- -------- ------ ---------
<S> <C> <C> <C> <C>
Common stock $155,000 $ 48,850 $ - $ 203,850
======== ======== ====== =========
</TABLE>
Proceeds from the sales of common stock held as available-for-sale during
the year ended September 30, 1998 were $43,125. A gain of $18,125 was
recognized on these sales.
Proceeds from the sales of common stock held as available-for-sale during
the year ended September 30, 1997 were $251,859. A gain of $36,859 was
recognized on these sales.
A summary of the investment securities held-to-maturity at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
------------------
Cost Gains Losses Value
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $8,482,539 $291,930 $ 11,939 $8,762,530
Obligations of states and
political subdivisions 918,616 20,492 - 939,108
---------- -------- -------- ----------
Total $9,401,155 $312,422 $ 11,939 $9,701,638
========== ======== ======== ==========
</TABLE>
A summary of investment securities available-for-sale at September 30, 1999
is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
------------------
Cost Gains Losses Value
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
Common Stock $ 155,000 $ 32,719 $ 4,688 $ 183,031
========== ======== ======== ==========
</TABLE>
There were no sales of common stock held as available-for-sale during the
year ended September 30, 1999.
28
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(3) INVESTMENT SECURITIES - (CONTINUED)
-----------------------------------
A summary of the investment securities held-to-maturity at September 30,
1999 is as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Gross Unrealized Fair
------------------
Cost Gains Losses Value
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $18,969,507 $133,178 $607,391 $18,495,294
Obligations of states and
political subdivisions 1,058,856 6,761 20,092 1,045,525
----------- -------- -------- -----------
Total $20,028,363 $139,939 $627,483 $19,540,819
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at September 30, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 249,984 $ 250,000
Due after one year through five years 5,023,219 4,934,100
Due after five years through ten years 13,625,160 13,280,619
Due after ten years 1,130,000 1,076,100
----------- -----------
Total $20,028,363 $19,540,819
=========== ===========
</TABLE>
There were no securities pledged as collateral at September 30, 1998.
Securities pledged as collateral had book values of $1,530,338 and market
values of $1,544,634 at September 30, 1999.
(4) INVESTMENT IN FEDERAL HOME LOAN BANK STOCK
------------------------------------------
Investment in stock of the Federal Home Loan Bank is required by law of
every federally-insured savings institution. No ready market exists for
this stock and it has no quoted market value. However, redemption of this
stock has been at par value.
The Savings Bank, as a member of the Federal Home Loan Bank of Des Moines,
is required to acquire and hold shares of capital stock in the Federal Home
Loan Bank of Des Moines in an amount equal to the greater of (i) 1.0% of
the aggregate outstanding principal amount of residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each
year, or (ii) 1/20 of its advances (borrowings) from the Federal Home Loan
Bank of Des Moines. The Savings Bank is in compliance with this requirement
with an investment in Federal Home Loan Bank of Des Moines stock of
$365,400 at September 30, 1999.
29
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998, and 1999
(5) MORTGAGE-BACKED SECURITIES
--------------------------
As discussed in Note (1), the carrying values and estimated market values
of mortgage-backed securities are summarized below:
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
--------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 729,903 $ - $ 3,085 $ 726,818
FHLMC Certificates 711,747 94 46,708 665,133
FNMA Certificates 1,739,439 - 9,985 1,729,454
--------------- ----------- ---------- ----------
$ 3,181,089 $ 94 $ 59,778 $3,121,405
=============== =========== ========== ==========
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
--------------- ----------- ---------- ----------
GNMA Certificates $ 726,818 $ 27,051 $ - $ 753,869
FHLMC Certificates 665,133 56,080 948 720,265
FNMA Certificates 1,729,454 8,020 5,982 1,731,492
--------------- ----------- ---------- ----------
$ 3,121,405 $ 91,151 $ 6,930 $3,205,626
=============== =========== ========== ==========
<CAPTION>
September 30, 1999
----------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
--------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 835,216 $ 2,736 $ 2,317 $ 835,635
FHLMC Certificates 520,677 60 32,690 488,047
FNMA Certificates 1,166,830 - 6,600 1,160,230
--------------- ----------- ---------- ----------
$ 2,522,723 $ 2,796 $ 41,607 $2,483,912
=============== =========== ========== ==========
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
--------------- ------------ --------- ---------
GNMA Certificates $ 835,635 $ 2,858 $ 2,441 $ 836,052
FHLMC Certificates 488,047 33,005 60 520,992
FNMA Certificates 1,160,230 7,727 - 1,167,957
--------------- ----------- ---------- ----------
$ 2,483,912 $ 43,590 $ 2,501 $2,525,001
=============== =========== ========== ==========
</TABLE>
The mortgage-backed securities presented above are non-equity securities.
Management does not believe there is substantial risk associated with these
securities.
30
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(6) LOANS RECEIVABLE
----------------
Loans receivable consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Mortgage loans:
One-to-four dwelling units $33,557,833 $34,220,790
Commercial 563,786 856,622
Construction 2,167,200 2,162,675
----------- -----------
Total mortgage loans 36,288,819 37,240,087
----------- -----------
Other loans:
Loans on deposits 471,139 481,674
Home equity loans 809,345 1,646,777
Consumer and automobile 1,205,810 1,599,428
Unsecured 11,816 1,600
----------- -----------
Total other loans 2,498,110 3,729,479
----------- -----------
Less:
Undisbursed portion of loans in process 1,298,715 858,417
Net deferred loan origination fees (costs) 16,016 (42,100)
Allowance for loan losses 51,612 62,706
----------- -----------
Net loans receivable $37,420,586 $40,090,543
=========== ===========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------
1997 1998 1999
---------- -------- -------
<S> <C> <C> <C>
Beginning balance $ 41,592 $ 43,787 $51,612
Provision charged
to income 2,195 7,825 12,112
Charge-offs - - (1,018)
---------- -------- -------
Ending balance $ 43,787 $ 51,612 $62,706
========== ======== =======
</TABLE>
The Association primarily grants residential loans to customers throughout
southwest Missouri. The loans are typically secured by real estate.
31
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(7) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
September 30,
----------------------------------
1998 1999
------------- -----------
Investment securities $ 131,625 $ 288,572
Mortgage-backed securities 24,091 18,423
Loans receivable 204,500 206,568
------------- -----------
$ 360,216 $ 513,563
============= ===========
(8) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
September 30, 1998
---------------------------------------
Accum.
Category Cost Deprec. Net
------------------ ---------- ---------- ----------
Land $ 402,015 $ - $ 402,015
Leasehold improvements 5,963 831 5,132
Buildings 1,113,272 542,925 570,347
Office furniture, fixtures
and equipment 497,879 345,342 152,537
---------- ---------- ----------
$2,019,129 $ 889,098 $1,130,031
========== ========== ==========
September 30, 1999
----------------------------------------
Accum.
Category Cost Deprec. Net
------------------ ----------------------------------------
Land $ 402,015 $ - $ 402,015
Leasehold improvements 13,198 1,467 11,731
Buildings 1,125,399 585,466 539,933
Office furniture, fixtures
and equipment 559,007 393,782 165,225
---------- ---------- ----------
$2,099,619 $ 980,715 $1,118,904
========== ========== ==========
Depreciation charged to operations for the years ended September 30, 1997,
1998 and 1999 was $84,895, $88,479, and $95,502.
32
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(9) INCOME TAXES
------------
The provision for income tax expense is as follows:
Years Ended September 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
Current $ 145,103 $ 322,595 $ 235,448
Deferred 101,106 (58,716) 11,773
--------- --------- ---------
Total $ 246,209 $ 263,879 $ 247,221
========= ========= =========
The provision for income taxes differs from that computed at the statutory
corporate rate of 34% as follows:
Years Ended September 30,
-------------------------------
1997 1998 1999
--------- -------- ---------
Tax at statutory rate $ 238,615 $244,169 $ 256,852
Increase (decrease) in taxes
resulting from:
State taxes, net of federal
benefit 5,533 9,097 8,457
Non-deductible expenses 17,223 25,222 8,310
Tax-exempt income (18,173) (15,381) (18,533)
Other 3,011 772 (7,865)
--------- -------- ---------
Provision for income taxes $ 246,209 $263,879 $ 247,221
========= ======== =========
33
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(9) INCOME TAXES - (CONTINUED)
--------------------------
Deferred income tax expense (benefit) results from timing differences in
the recognition of income and expense for tax and financial reporting
purposes. The sources of the differences and the related tax effects are as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------
1997 1998 1999
--------------- --------------- --------------
<S> <C> <C> <C>
Difference from depreciation methods used
for tax purposes and financial statements $ 9,070 $ (1,347) $ 128
Use of different methods for computing
loan loss reserves for tax purposes and
financial statements (812) (2,895) (40,494)
Difference from accretion methods used
for mortgage-backed security discounts
for tax purposes and financial statements (8,134) (3,306) (5,858)
Federal Home Loan Bank stock
dividends - (4,773) -
Difference from cash basis accounting
for tax purposes and accrual basis
accounting for financial statements 109,730 (31,683) 92,253
Use of different methods for computing
net deferred loan fees for tax purposes
and financial statements 9,870 (3,185) (4,477)
Deferred compensation 5,025 (35,544) (21,587)
Unearned compensation (19,301) 9,675 (4,743)
Other book/tax differences (4,342) 14,342 (3,449)
--------------- --------------- --------------
Increase (decrease) in deferred income taxes $ 101,106 $ (58,716) $ 11,773
=============== =============== ==============
</TABLE>
34
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(9) INCOME TAXES - (CONTINUED)
-------------------------
The components of deferred tax assets and liabilities consisted of:
<TABLE>
<CAPTION>
September 30,
-----------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 19,096 $ 23,201
Deferred compensation 69,760 91,347
Unearned compensation 39,192 43,935
-------- --------
Total gross deferred tax assets 128,048 158,483
-------- --------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation 27,093 27,221
Federal Home Loan Bank stock dividends 31,601 31,601
Bad debt reserves for tax purposes in excess of
base year bad debt reserves 155,474 119,085
Cash basis conversion for tax purposes 89,369 181,622
Book accretion in excess of tax accretion
on mortgage-backed security discounts 86,418 80,560
Unrealized gains on investments 18,074 10,371
Deferred loan fees 50,129 45,652
Other 10,000 6,551
-------- --------
Total gross deferred tax liabilities 468,158 502,663
-------- --------
Net deferred tax liabilities $340,110 $344,180
======== ========
</TABLE>
In accordance with SFAS No. 109, a deferred tax liability has not been
recognized for tax basis bad debt reserves of approximately $1,406,992 of the
Association that arose in tax years that began prior to December 31, 1987. At
September 30, 1999, the amount of the deferred tax liability that had not
been recognized was approximately $520,587. This deferred tax liability could
be recognized if, in the future, there is a change in federal tax law, the
Association fails to meet the definition of a `qualified savings
institution,' as defined by the Internal Revenue Code, certain distributions
are made with respect to the stock of the Association, or the bad debt
reserves are used for any purpose other than absorbing bad debts. In August
1996, new legislation was enacted which provided for the recapture into
taxable income of certain amounts previously deducted as additions to the bad
debt reserves for income tax purposes. The Association began changing its
method of determining bad debt reserves for tax purposes during 1996. The
amounts to be recaptured for income tax reporting purposes are considered by
the Association in the determination of the net deferred tax liability.
35
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(10) CUSTOMER DEPOSITS
-----------------
Deposit account balances at September 30, 1998 and 1999, are summarized as
follows:
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
Amount % Amount %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 579,296 1.2 $ 961,565 1.9
Interest-bearing checking accounts 7,335,785 15.3 8,841,425 17.1
Money market accounts 2,583,749 5.4 2,852,975 5.5
Passbook savings 5,718,696 11.9 5,668,897 11.0
Certificates of deposit 31,726,963 66.2 33,222,126 64.5
------------ ----- ------------ -----
$ 47,944,489 100.0% $ 51,546,988 100.0%
============ ===== ============ =====
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $1,796,692 and $3,087,014 at
September 30, 1998 and 1999, respectively.
At September 30, 1999 scheduled maturities of certificates of deposit are
as follows:
2000 $ 23,703,381
2001 8,463,885
2002 876,601
2003 151,375
2004 26,884
------------
$ 33,222,126
============
(11) ADVANCES FROM FEDERAL HOME LOAN BANK
------------------------------------
The advances listed below were obtained from the Federal Home Loan Bank of
Des Moines and secured by Federal Home Loan Bank stock, loans, investment
securities and deposit accounts. Advances from the Federal Home Loan Bank
at September 30, are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
109 day, 5.41% fixed, interest payable at
maturity, matures November 1999 $ - $ 1,000,000
90 day, 5.42% fixed, interest payable at
maturity, matures December 1999 - 1,000,000
Ten year, 5.05% adjustable (FHLB DSM 1-
year cost of funds + .20%), interest payable
monthly, matures November 2016 1,000,000 1,000,000
Fifteen year, 6.00% fixed, $8,439 due monthly
including interest, matures June 2013 989,633 946,577
Fifteen year, 5.79% fixed, $8,326 due monthly
including interest, matures August 2013 996,499 953,153
Fifteen year, 5.50% fixed, $8,171 due monthly
including interest, matures September 2013 1,000,000 955,848
----------- -----------
$ 3,986,132 $ 5,855,578
=========== ===========
</TABLE>
36
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(11) ADVANCES FROM FEDERAL HOME LOAN BANK - (CONTINUED)
--------------------------------------------------
The adjustable advance shown above shall be subject to a prepayment fee
equal to 100 percent of the present value of the monthly lost cash flow to
the Federal Home Loan Bank based upon the difference between the contract
rate on the advance and the rate on an alternative qualifying investment of
the same remaining maturity. The advance may be prepaid without a
prepayment fee if the rate on an advance being prepaid is equal to or below
the current rate for an alternative qualifying investment of the same
remaining maturity. The fixed rate advances are not prepayable during the
first five years. After five years, the advances are prepayable without
penalty.
Maturities of Federal Home Loan Bank advances are as follows:
<TABLE>
<CAPTION>
Aggregate
Annual
Year Ended September 30 Maturities
----------------------- -----------
<S> <C>
2000 $ 2,138,280
2001 146,461
2002 155,127
2003 164,305
2004 174,028
Later Years 3,077,377
-----------
$ 5,855,578
===========
</TABLE>
(12) EMPLOYEE BENEFITS
-----------------
The Association has established a 401(k) employee benefit plan that covers
all employees meeting specific age and length of service requirements.
Total expenses incurred for the plan were $9,657, $10,581 and $15,394 for
the years ended September 30, 1997, 1998 and 1999, respectively.
The Association has also entered into a salary continuation agreement with
five of its officers. These agreements provide for monthly deferred
compensation payments for a period of ten years following retirement. The
Association has purchased life insurance policies to fund these agreements.
Deferred compensation charged to operations for the years ended September
30, 1997, 1998 and 1999 was $17,354, $30,473 and $32,353.
Effective June 1, 1997, the Association adopted a deferred compensation
plan for five outside directors. The directors will vest over a period of
five years and the agreements provide for monthly deferred compensation
payments for a period of five years following retirement. Directors'
deferred compensation charged to operations for the years ended September
30, 1997, 1998 and 1999 was $8,664, $25,992 and $25,992.
The Association has entered into employment agreements with two of its
officers for three years. On each anniversary of the commencement date of
the agreement, the term of the agreement may be extended for an additional
year. In the event of a change of control or termination other than for
cause, the officers would be entitled to receive severance payments from
the Association of 2.99 times the officers' average annual compensation
during the preceding five years.
37
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(12) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
The Association established an internally-leveraged ESOP for the exclusive
benefit of participating employees (all salaried employees who have
completed at least 1000 hours of service in a twelve-month period and have
attained the age of 21). The loan is secured by the shares purchased and
will be repaid by the contributions to the ESOP and any other earnings on
ESOP assets. The Association presently expects to contribute approximately
$106,762 including interest annually to the ESOP. Contributions will be
applied to repay interest on the loan first, then the remainder will be
applied to principal. The loan is expected to be repaid in approximately
six years. As of September 30, 1999, the loan had an outstanding balance of
$459,248 and an interest rate of 9%.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the
ESOP and shares released from the suspense account are allocated among
participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 25%
vested after each year of credited service beyond one year. Vesting is
accelerated upon retirement, death or disability or separation from
service. Since the Association's annual contributions are discretionary,
benefits payable under the ESOP cannot be estimated.
The Association accounts for its ESOP in accordance with Statement of
Position 93-6, "Employers Accounting for Employee Stock Ownership Plans."
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. Contributions to the ESOP shall be sufficient
to pay principal and interest currently due under the loan agreement. As
shares are committed to be released from collateral, the Association
reports compensation expense equal to the average market price of the
shares for the respective period, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation was $109,793 in 1997, $122,070 in 1998 and $83,990 in 1999.
A summary of ESOP shares at September 30, 1999 is as follows:
<TABLE>
<S> <C>
Allocated shares 27,240
Shares committed for release 8,217
Unreleased shares 46,762
--------
Total 82,219
========
Fair value of unreleased shares $537,763
</TABLE>
38
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(12) EMPLOYEE BENEFITS - (CONTINUED)
-------------------------------
The Association has adopted a Management Recognition and Development Plan
("MRDP") for the benefit of the directors, officers and employees of the
Association. The MRDP provides directors, officers and employees of the
Company with a proprietary interest in the Company in a manner designed to
encourage such persons to remain with the Association. The MRDP is managed
by trustees comprised of the directors of the Company. The Plan authorizes
the Company to grant up to 41,109 shares of the Company stock, of which
37,638 shares have been awarded as of September 30, 1999. These shares
represent unearned compensation and have been accounted for as a reduction
of stockholders' equity. Such awards vest at the rate of 20% at the end of
each twelve months. Vesting is accelerated upon retirement. The Association
recorded $73,519, $74,074 and $78,574 of compensation expense under the
MRDP in 1997, 1998 and 1999.
(13) STOCK OPTION PLAN
-----------------
The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's 1995 Stock Option and Incentive Plan has authorized the grant
of options to management personnel for up to 102,774 shares of the
Company's common stock. All options granted have 10 year terms and vest and
become exercisable ratably over 5 years following date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the company had
accounted for its employee stock options under the fair value method of
that Statement. Stock Options were first granted January 17, 1996. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1999, respectively; risk-free interest rates of
6.25% and 6.25%; dividend yields of 2.79% and 4.74%, and a weighted-average
expected life of the option of 10 years. Based on historical fluctuations
of stock price, the volatility factor is considered zero.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
fair value of its employee stock options.
39
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(13) STOCK OPTION PLAN - (CONTINUED)
-------------------------------
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income $437,428 $434,093 $487,643
======== ======== ========
Pro forma basic earnings
per share: $ .54 $ .63 $ .71
======== ======== ========
Pro forma diluted earnings
per share: $ .53 $ .61 $ .70
======== ======== ========
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended September 30 follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ----------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise-Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 80,892 $ 10.78 76,692 $ 11.01 76,692 $ 11.01
Granted 4,200 14.96 - - 4,200 11.25
Exercised (1,200) 10.78 - - - -
Forfeited (7,200) 10.78 - - - -
-------- -------- --------
Outstanding-end of year 76,692 11.01 76,692 $ 11.01 80,892 11.02
======== ======== ========
Exercisable at end of
year 14,498 10.78 29,837 10.90 45,174 10.94
Weighted-average fair
value of options
granted during the
year $ 3.12 N/A $.78
</TABLE>
Exercise prices for options outstanding as of September 30, 1999
ranged from $10.78 to $15.53. The weighted-average remaining contractual
life of those options is 6.5 years.
All references in this note to the number of shares and per share
amounts have been restated to reflect the 20% stock dividend during 1999.
40
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(14) EARNINGS PER SHARE
------------------
The following information shows the amounts used in computing
earnings per share and the effect on income and the weighted average number
of shares of dilutive potential common stock. The amounts in the income
columns represent the numerator and the amounts in the shares columns
represent the denominator.
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------- ---------------------------- -----------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- -------- ----------- -------- ------ --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available
to Common
Stockholders $455,599 805,870 0.57 $454,265 689,326 0.66 $ 508,226 689,768 0.74
====== ====== ======
Effect of
dilutive securities - 12,966 - 19,896 - 7,205
-------- ------- -------- ------- --------- -------
Diluted EPS:
Income available to
Stockholders plus
stock options $455,599 818,836 0.56 $454,265 709,222 0.64 $ 508.226 696,973 0.73
======== ======= ====== ======== ======= ====== ========= ======= ======
</TABLE>
(15) RELATED-PARTY TRANSACTIONS
--------------------------
Certain employees, officers and directors are engaged in transactions with
the Association in the ordinary course of business. It is the Association's
policy that all related party transactions are conducted at "arm's length"
and all loans and commitments included in such transactions are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
customers. A summary of the changes in outstanding loans to employees,
officers and directors for the years ended September 30 is as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Beginning balance $ 454,119 $ 705,726
Originations and advances 366,631 444,218
Principal repayments (115,024) (225,053)
--------- ---------
Ending balance $ 705,726 $ 924,891
========= =========
</TABLE>
Crawford Mortgage, Inc. leases office facilities from an officer of the
corporation on a month-to-month basis. The monthly rent decreased in
September 1999 from $1,500 to $1,200. Rent charged to operations for the
years ended September 30, 1997, 1998 and 1999 was $1,984, $18,000 and
$17,700, respectively.
41
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(16) COMMITMENTS AND CONTINGENCIES
-----------------------------
In the ordinary course of business, the Association has various outstanding
commitments that are not reflected in the accompanying consolidated
financial statements. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The principal commitments of the
Association are as follows:
Loan Commitments - The Association had outstanding firm commitments to
originate variable rate real estate loans in the amount of $1,501,398
at September 30, 1999.
(17) ADVERTISING COSTS
-----------------
The Company incurred $31,140, $42,422 and $47,935 in non-direct response
advertising costs during the years ended September 30, 1997, 1998 and 1999,
respectively. The Company incurred no direct response advertising costs
during the three years.
(18) REGULATORY CAPITAL REQUIREMENTS
-------------------------------
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision ("OTS"). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators, that if undertaken, could have a
direct material affect on the Association and the consolidated financial
statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must
meet specific capital guidelines involving quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth
in the table below) of total risk-based capital and Tier 1 capital to risk-
weighted assets ( as defined in the regulations), Tier 1 capital to
adjusted total assets (as defined), and tangible capital to adjusted total
assets (as defined). Management believes, as of September 30, 1999, that
the Association meets all capital adequacy requirements to which it is
subject.
42
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(18) REGULATORY CAPITAL REQUIREMENTS - (CONTINUED)
---------------------------------------------
As of September 30, 1999, the most recent notification from the OTS, the
Association was categorized as well-capitalized under the framework for
prompt corrective action. To be categorized as well-capitalized, the
Association must maintain minimum total risk-based, Tier 1 risk-based, and
core capital leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Association's actual capital amounts and ratios are also presented in
the table. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
(Dollars in thousands)
As of September 30, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 8,465 29.7% * $ 2,279 * 8.0% * $ 2,849 * 10.0%
Core Capital
(to Adjusted Tangible Assets) 8,413 13.4% * 2,509 * 4.0% * 3,136 * 5.0%
Tangible Capital
(to Tangible Assets) 8,413 13.4% * 941 * 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 8,413 29.5% N/A * 1,710 * 6.0%
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) 9,219 29.9% * 2,467 * 8.0% * 3,083 * 10.0%
Core Capital
(to Adjusted Tangible Assets) 9,156 13.3% * 2,749 * 4.0% 3,436 * 5.0%
Tangible Capital
(to Tangible Assets) 9,156 13.3% * 1,031 * 1.5% N/A
Tier 1 Capital
(to Risk-Weighted Assets) 9,156 29.7% N/A * 1,850 * 6.0%
</TABLE>
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents and certificates of deposit - For these short-
term instruments, the carrying amount approximates fair value.
Available-for-sale and held-to-maturity securities - Fair values for
investment securities equal quoted market prices, if available. If
quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
* = Greater than or equals to
43
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
-------------------------------------------------------------------
Loans held for sale - These instruments are carried in the consolidated
balance sheet at the lower of cost or fair value. The fair values of
these instruments are based on subsequent liquidation values of the
instruments which did not result in any significant gains or losses.
Loans receivable - The fair value of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the same
remaining maturities. Loans with similar characteristics are
aggregated for purposes of the calculations. The carrying value of
accrued interest receivable approximates its fair value.
Investment in FHLB stock - Fair value of the Association's investment in
FHLB stock approximates the carrying value as no ready market exists
for this investment and the stock could only be sold back to the
Federal Home Loan Bank.
Deposits - The fair value of demand deposits, savings accounts and
interest-bearing demand deposits is the amount payable on demand at
the reporting date (i.e., their carrying amount). The fair value of
fixed-maturity time deposits is estimated using a discounted cash flow
calculation that applies the rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
payable approximates its fair value.
Federal Home Loan Bank advances - Rates currently available to the
Association for advances with similar terms and remaining maturities
are used to estimate fair value of existing advances. The carrying
amount of accrued interest payable approximates its fair values.
Advances from borrowers for taxes and insurance - For these short-term
liabilities, the carrying value approximates fair value.
Commitments to extend credit, letters of credit and lines of credit - The
fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit and lines of
credit is based on fees currently charged for similar agreements or on
the estimated cost to terminate or otherwise settle the obligations
with the counterparts at the reporting date.
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounted expected cash flows, which involves significant
judgments by management and uncertainties. Fair value is the estimated
amount at which financial assets or liabilities could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below
represent values at which the respective financial instruments could be
sold individually or in the aggregate.
44
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(19) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
-------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1998
------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $10,383,379 $10,383,379
Certificates of deposit 674,000 674,000
Available-for-sale securities 203,850 203,850
Held-to-maturity securities 9,401,155 9,701,638
Investment in FHLB stock 365,400 365,400
Held-to-maturity mortgage-backed securities 3,121,405 3,205,626
Loans held for sale 85,582 87,313
Loans, net of allowance for loan losses 37,420,586 37,811,000
Accrued interest receivable 360,216 360,216
Financial liabilities:
Deposits $47,944,489 $48,060,000
Federal Home Loan Bank advances 3,986,132 4,181,000
Advances from borrowers for taxes and insurance 305,199 305,199
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
September 30, 1999
------------------------
Carrying Fair
Amount Value
----------- -----------
Financial assets:
Cash and cash equivalents $ 2,316,542 $ 2,316,542
Certificates of deposit 1,664,000 1,664,000
Available-for-sale securities 183,031 183,031
Held-to-maturity securities 20,028,363 19,540,819
Investment in FHLB stock 365,400 365,400
Held-to-maturity mortgage-backed securities 2,483,912 2,525,001
Loans held for sale 79,262 82,977
Loans, net of allowance for loan losses 40,090,543 39,883,000
Accrued interest receivable 513,563 513,563
Financial liabilities:
Deposits $51,546,988 $51,125,000
Federal Home Loan Bank advances 5,855,578 5,492,000
Advances from borrowers for taxes and insurance 354,010 354,010
Unrecognized financial instruments
(net of contract amount)
Commitments to extend credit - -
Letters of credit - -
Unused lines of credit - -
</TABLE>
45
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION
-----------------------------------------
The following condensed statements of financial condition and condensed
statements of income and cash flows for NS&L Bancorp, Inc. should be read
in conjunction with the consolidated financial statements and notes
thereto.
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
September 30,
--------------------------
ASSETS 1998 1999
------ ----------- -----------
<S> <C> <C>
Cash $ 855,589 $ 513,404
Certificates of deposit 80,000 80,000
Investment securities available-for-sale, at fair value 203,850 183,031
Investment in subsidiary 8,528,038 9,234,425
Loan to ESOP 519,275 459,248
Land 302,865 302,865
Due from subsidiary 3,668 -
Other assets 7,667 13,120
----------- -----------
Total assets $10,500,952 $10,786,093
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 680 $ 98
Deferred income taxes, net 18,539 10,836
Dividends payable 77,105 118,699
Stockholders' equity 10,404,628 10,656,460
----------- -----------
Total liabilities and stockholders' equity $10,500,952 $10,786,093
=========== ===========
</TABLE>
46
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Income
Equity in earnings of subsidiary $ 375,058 $ 421,452 $ 500,298
Interest income 124,059 61,140 50,675
Dividend income 8,806 6,916 8,856
Gain on sale of investments 36,859 18,125 -
Other income - 715 -
------------- ------------- -------------
Total income 544,782 508,348 559,829
------------- ------------- -------------
Expenses
Professional fees 19,422 15,304 22,456
Other 25,895 25,824 28,385
Income tax 43,866 12,955 762
------------- ------------- -------------
Total expenses 89,183 54,083 51,603
------------- ------------- -------------
Net income $ 455,599 $ 454,265 $ 508,226
============= ============= =============
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 455,599 $ 454,265 $ 508,226
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of subsidiary (375,058) (421,452) (500,298)
Discounts on investment securities (568) - -
Gain on sale of investments (36,859) (18,125) -
Net change in operating accounts:
Deferred income taxes, net (13,926) 815 -
Other assets 93,977 13,979 (1,784)
Liabilities (9,272) (17,111) (582)
------------- ------------- -------------
Net cash from
operating activities 113,893 12,371 5,562
------------- ------------- -------------
</TABLE>
47
<PAGE>
NS&L BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended September 30, 1997, 1998 and 1999
(20) PARENT COMPANY ONLY FINANCIAL INFORMATION - (CONTINUED)
-------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from investing activities:
Dividends from subsidiary - 1,000,000 -
Receipt of principal payment on
ESOP loan 16,312 20,907 16,502
Proceeds from maturities of investments 500,000 - -
Proceeds from sales of investments 251,859 43,125 -
Purchase of property and equipment (302,865) - -
Net change in certificates of deposit 1,229,553 99,000 -
----------- ----------- ---------
Net cash from investing activities 1,694,859 1,163,032 16,502
----------- ----------- ---------
Cash flows from financing activities:
Net proceeds from issuance of
common stock 12,938 - -
Cash dividends paid (330,856) (311,963) (350,012)
Purchase of treasury stock (793,035) (1,746,051) (14,237)
----------- ----------- ---------
Net cash used in financing
activities (1,110,953) (2,058,014) (364,249)
----------- ----------- ---------
Net increase (decrease) in cash and
cash equivalents 697,799 (882,611) (342,185)
Cash and cash equivalents at
beginning of period 1,040,401 1,738,200 855,589
----------- ----------- ---------
Cash and cash equivalents at
end of period $ 1,738,200 $ 855,589 $ 513,404
=========== =========== =========
</TABLE>
48
<PAGE>
COMMON STOCK INFORMATION
The common stock of NS&L Bancorp, Inc. is traded on the NASDAQ (Small Cap)
Stock Market under the symbol "NSLB". As of November 26, 1999, there were 272
stockholders of record and 720,626 shares of common stock outstanding (including
unreleased ESOP shares of 46,762). This does not reflect the number of persons
or entities who hold stock in nominee or "street name". On September 15, 1999,
the Company declared a $.16 common stock dividend payable October 29, 1999 to
stockholders of record on October 15, 1999. Dividend payments by the Company
are dependent primarily on dividends received by the Company from the
Association. Under Federal regulations, the dollar amount of dividends a
savings and loan association may pay is dependent upon the association's capital
position and recent net income. Generally, if an association satisfies its
regulatory capital requirements, it may make dividend payments up to the limits
prescribed in the OTS regulations. However, institutions that have converted to
stock form of ownership may not declare or pay a dividend on, or repurchase any
of, its common stock if the effect thereof would cause the regulatory capital of
the institution to be reduced below the amount required for the liquidation
account which was established in accordance with the OTS regulations and the
Association's Plan of Conversion. There are also certain dividend limitations
applicable to the Company under Missouri law.
The following table sets forth market price and dividend information for the
Company's common stock. Share price and dividend information have been adjusted
to reflect the 20% stock dividend paid in April 1999.
Fiscal 1998 Fiscal 1999
----------- -----------
High Low Dividend High Low Dividend
---- --- -------- ---- --- --------
First Quarter $16.25 $15.21 $0.104 $12.50 $10.42 $0.133
Second Quarter $15.42 $14.48 $0.104 $13.54 $11.25 $0.133
Third Quarter $15.00 $14.48 $0.104 $15.00 $12.75 $ 0.16
Fourth Quarter $15.42 $12.80 $0.104 $12.88 $11.50 $ 0.16
49
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
NS&L Bancorp, Inc.
<TABLE>
<CAPTION>
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
<S> <C> <C>
Neosho Savings and Loan Association, F.A. 100% United States
NS&L Enterprises, Inc. (b) 100% Missouri
Crawford Mortgage, Inc. (b) 100% Missouri
</TABLE>
- ------------------
(a) The operation of the Corporation's wholly owned subsidiaries are included
in the Corporation's Financial Statements contained in the Annual Report
attached hereto as Exhibit 13.
(b) Wholly-owned subsidiary of Neosho Savings and Loan Association, F.A.
<PAGE>
EXHIBIT 23
[KIRKPATRICK, PHILLIPS & MILLER
CERTIFIED PUBLIC ACCOUNTANTS
LETTERHEAD APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We have issued our report dated November 11, 1999, accompanying the consolidated
financial statements incorporated by reference in the Annual Report of NS&L
Bancorp, Inc. on Form 10-KSB for the year ending September 30, 1999. We hereby
consent to the incorporation by reference of said reports in the registration
statement of NS&L Bancorp, Inc. on Form S-8 (File No. 333-1566, effective
February 21, 1996).
/s/ Kirkpatrick, Phillips & Miller
December 24, 1999
Springfield, Missouri
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains information extracted from the consolidated financial
statements of NS&L Bancorp for the year ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,317,000
<INT-BEARING-DEPOSITS> 1,664,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 183,000
<INVESTMENTS-CARRYING> 22,878,000
<INVESTMENTS-MARKET> 23,112,000
<LOANS> 40,233,000
<ALLOWANCE> 63,000
<TOTAL-ASSETS> 69,228,000
<DEPOSITS> 51,547,000
<SHORT-TERM> 2,354,000
<LIABILITIES-OTHER> 814,000
<LONG-TERM> 3,856,000
10,000
0
<COMMON> 0
<OTHER-SE> 10,656,000
<TOTAL-LIABILITIES-AND-EQUITY> 10,656,000
<INTEREST-LOAN> 2,898,000
<INTEREST-INVEST> 1,175,000
<INTEREST-OTHER> 287,000
<INTEREST-TOTAL> 4,360,000
<INTEREST-DEPOSIT> 2,111,000
<INTEREST-EXPENSE> 2,341,000
<INTEREST-INCOME-NET> 2,019,000
<LOAN-LOSSES> 12,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,703,000
<INCOME-PRETAX> 755,000
<INCOME-PRE-EXTRAORDINARY> 508,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508,000
<EPS-BASIC> .74
<EPS-DILUTED> .73
<YIELD-ACTUAL> 2.41
<LOANS-NON> 37,000
<LOANS-PAST> 255,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 52,000
<CHARGE-OFFS> 12,000
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 63,000
<ALLOWANCE-DOMESTIC> 63,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
